Question

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 200 units is $6.00. The minimum possible average variable cost is $8.00. The market price of the product is $6.00. To maximize profit or minimize losses, the firm should:

A. Continue to produce 200 units
B. Produce less than 200 units
C. Produce more than 200 units
D. Shut down

Answer 1

To maximize profit or minimize losses, the firm should produce less than 200 units.

Step-by-step explanation:

To maximize profit or minimize losses, the firm should produce less than 200 units

1. When the market price is $6.00 and the marginal cost is $6.00, the firm will break even if it produces 200 units.
2. However, the minimum possible average variable cost is $8.00, which means that producing 200 units would result in a loss ($8.00 - $6.00).
3. Therefore, it would be best for the firm to produce less than 200 units to minimize losses.