Question

Reff Corp is a firm with total revenue of $1,000, marginal cost of $5, and average variable cost of $4. Both the output and the input markets are perfectly competitive, and Reff Corp is currently in long-run equilibrium. Reff Corp’s output and total fixed cost of production must be equal to which of the following?

a) $1,000
b) $995
c) $4
d) None of the above.

Answer 1

In a perfectly competitive market, the profit-maximizing firm produces where price or marginal revenue equals marginal cost. Therefore, the output and total fixed cost of production must be equal to the total revenue.

Step-by-step explanation:

In a perfectly competitive market, the profit-maximizing firm will produce where price or marginal revenue (MR) equals marginal cost (MC).

The output level at which this occurs will determine the firm's total revenue, total cost, and total fixed cost of production.

In the given scenario, Reff Corp is in long-run equilibrium, which means it is already producing at the profit-maximizing quantity.

Therefore, Reff Corp's output and total fixed cost of production must be equal to the total revenue.

Since the total revenue is $1,000, the answer is a) $1,000.