Question

Ben and Jerry are managers at the​ company, and they have this​ discussion: Ben​: We should produce​ 4,000 lamps per month because that will minimize our average costs. Jerry​: But​ shouldn't we maximize profits rather than minimize​ costs? To maximize​ profits, don't we need to take demand into​ account? Ben​: ​Don't worry. By minimizing average​ costs, we will be maximizing profits. Demand will determine how high the price we can charge will​ be, but it​ won't affect our​ profit-maximizing quantity. Evaluate the discussion between the two managers. ​Ben's assertion that the firm should produce the quantity of lamps where average costs are minimized is

Answer 1

Incorrect because profits are instead maximized at the quantity where marginal cost equals marginal​ revenue, which may be different since marginal revenue depends on consumer demand.