Question

Suppose that a firm in a perfectly competitive industry finds that at its current output​ rate, marginal revenue exceeds the minimum average total cost of producing any feasible rate of output.​ Furthermore, the firm is producing an output rate at which marginal cost is less than the average total cost at that rate of output. Is the firm maximizing its economic​ profits?

Answer 1

The firm is not maximizing its economic profits.

Step-by-step explanation:

When the marginal revenue exceeds the average total cost of production, it means that the firm is having profits.

Though this profit level is not maximized. For, the profit level to be maximized the marginal cost curve should be intersecting the average total cost curve at its minimum point.

Here, the marginal cost is less than average total cost. This means that ATC is falling and is yet to reach its minimum point.

So, the firm is enjoying profit but not maximizing it.

Suppose the firm is operating at Q, the profit will be maximized at Q'.