A firm sells a product in a purely competitive market.The marginal cost of the product at the current output of 1000 units is $2.50.The minimum possible average variable cost is $2.00.The market price of the product is $2.50.To maximize profit or minimize losses,the firm should:

Question

Quizplus · Accepted Answer

The firm should continue producing 1000 units because the market price equals the marginal cost, which is the condition for profit maximization in a competitive market. The price also covers the average variable cost, so the firm should not shut down.

A Firm Sells a Product in a Purely Competitive Market