Question

You've been hired as a management consultant to WaffleCo, a maker of generic-brand frozen waffles. They're each trying to figure out if they should produce a little more output or a little bit less in order to maximize their profits. The firms all have typical marginal cost curves: They rise as the firm produces more. Your staff did all the hard work for you of figuring out the price of the firm's output is $4 per box and the marginal cost of producing one more unit of output is $2 per box at its current level of output. However, they forgot to collect data on how much the firm is actually producing at the moment. Fortunately, that doesn't matter. In your final report, you need to decide if the firm should produce more, less, or stay at the current output level. What do you recommend?

Answer 1

The firm should produce more output in order to maximize their profits.

Step-by-step explanation:

The firm should produce more output in order to maximize their profits. When the price of the firm's output is higher than the marginal cost of producing one more unit of output, it is profitable to increase production.

In this case, the price of the firm's output is $4 per box and the marginal cost is $2 per box.

Since the price is higher than the marginal cost, the firm should produce more in order to increase their profits.