UG Tech,Inc.is a perfectly competitive firm producing wireless earbuds where marginal revenue is equal to marginal cost.The current market price of wireless earbuds is $30.00.UG Tech,Inc.sells 500 wireless earbuds.Its short-run average variable cost is $10.00 and its average fixed cost is $5.00.What should UG Tech,Inc.do?

Question

Quizplus · Accepted Answer

In the short-run, UG Tech,Inc. should continue to produce because the market price of $30.00 is higher than its short-run average variable cost of $10.00. This means they are earning a positive economic profit. Additionally, since the firm is perfectly competitive, it cannot affect the market price, and it should produce at the level where marginal revenue equals marginal cost to maximize profits. Therefore, the best choice is to continue to produce.