Jessica owns a company that makes pre-packaged sandwiches for convenience stores.The market price for a sandwich is $5 and Jessica is a price-taker.Her daily variable cost for making sandwiches is C(Q)= 2.5Q + (Q²/40)and her marginal cost is MC = 2.5 + (Q/20).She is currently producing sandwiches according to the quantity rule.What should Jessica do if she has an avoidable fixed cost of $50 a day?

Question

Quizplus · Accepted Answer

Jessica should keep producing sandwiches because she is maximizing profit at the current quantity. In a competitive market, as long as the price covers the marginal cost, the firm should continue production to cover any portion of the fixed costs and potentially make a profit. The avoidable fixed cost does not affect the decision to produce in the short run as long as the price is above the marginal cost, which is the condition for maximizing profit.

Jessica Owns a Company That Makes Pre-Packaged Sandwiches for Convenience