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A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 1,000 units is $2.50. The minimum possible average variable cost is $2.00. The market price of the product is $2.50. To maximize profits or minimize losses, the firm should

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Available Options Are:

A. Continue producing 1,000 units

B. Produce less than 1,000 units

C. Produce more than 1,000 units

D. Shut down

Answer:

Option A. Continue producing 1,000 units

Explanation:

The reason is that the maximum number of units that the company can produce is at the level where Marginal Cost becomes equal to the Marginal Revenue. Which means that the number of units the company is producing is at maximum level. Hence it must continue producing 1000 units.

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