A cassava farming enterprise operates in a perfectly competitive market where the market price is per bag. At its current production of bags, the firm's average total cost () is , marginal cost () is , and average variable cost () is . What total economic profit or loss is this enterprise earning, and should it alter its production output?
- An economic profit of , and output should remain unchanged as profit is already maximized.Cevap
- BAn economic profit of , but it should expand output further because price exceeds average variable cost.
- CAn economic profit of , and output should remain unchanged.
- DZero economic profit, because competitive firms always earn zero economic profit.
Cevap
The enterprise earns an economic profit of and should keep output unchanged at bags.
Per-unit economic profit is the difference between price () and average total cost (), which is per bag. Total profit for bags is . Because the firm is producing where price (marginal revenue) equals marginal cost (), it is maximizing short-run profit and should not change output.
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Anahtar Kavram
Short-Run Profit Maximization in Perfect Competition