If the short-run marginal costs of producing a good are $40 for the first 200 units and $50 for each additional unit beyond 200, then in the short run, if the market price of output is $46, a profit-maximizing firm will
A)produce a level of output where marginal revenue equals marginal costs.
B)produce as much output as possible since there are constant returns to scale.
C)produce up to the point where average costs equal $46.
D)not produce at all, since marginal costs are increasing.
E)produce exactly 200 units.

Question

Quizplus · Accepted Answer

In the short run, a profit-maximizing firm will produce up to the point where marginal cost equals the market price. Since the marginal cost is $40 for the first 200 units and $50 for each additional unit, the firm will produce exactly 200 units because the market price of $46 is between these two marginal costs.

If the Short-Run Marginal Costs of Producing a Good Are