Question

In a perfectly competitive industry, the market price is $25. A firm is currently producing 10,000 units of output. Its average total cost is $28, its marginal cost is $20, and its average variable cost is $20. Given these facts, explain whether the following statements are true or false: a. The firm is currently producing at the minimum average variable cost. b. The firm should produce more output to maximize its profit. c. Average total cost will be less than $28 at the level of output that maximizes the firm's profit. Hint: You should assume normal U-shaped cost curves for this problem.

          In a perfectly competitive industry, the market price is $25. A firm is currently producing 10,000 units of output. Its average total cost is $28, its marginal cost is $20, and its average variable cost is $20. Given these facts, explain whether the following statements are true or false: 
a. The firm is currently producing at the minimum average variable cost. 
b. The firm should produce more output to maximize its profit. 
c. Average total cost will be less than $28 at the level of output that maximizes the firm's profit. 
Hint: You should assume normal U-shaped cost curves for this problem.

Added by Nieves P.

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