Suppose the price of a cookie is $1.50 and cookies are produced in a competitive market. When Cathy's Cookies produces 200 cookies, the average fixed cost is $2.00, the average variable cost is $1.00 and the marginal cost is $1.50. To maximize profit, Cathy should a.continue producing 200 cookies in the short run b.produce more than 200 cookies in the short run c.produce fewer than 200 cookies but continue producing in the short run d.shut down in the short run

Respuesta :

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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