To maximize the profit Cathy should (B) produce more than 200 cookies in the short run.
What is the average marginal cost?
- The difference in total cost when another unit is produced is referred to as the marginal cost; the average cost is the total cost divided by the number of units produced.
What is the average variable cost?
- In economics, the variable cost per unit is known as the average variable cost.
- Divide the entire variable cost by the output to get the average variable cost.
- In the short term, the enterprises use the average variable cost to determine whether to stop production.
Solution -
We know that marginal cost includes a variable cost.
So, to find profit subtract marginal cost by average fixed cost.
[tex]2.00-1.50 = 0.50[/tex]
[tex]0.50 * 200 = 100[/tex]
Profit when 200 cookies are sold = $100.
Therefore, to maximize the profit Cathy should (B) produce more than 200 cookies in the short run.
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