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20 March, 21:01

Assume that marginal revenue equals rising marginal cost at 100 units of output.

At this output level, a firm's total fixed cost is $400 and its total variable cost is $600. If the price of the product is $3 per unit and the firm produces at its optimal level, the firm will earn an economic profit equal to

a) - $600.

b) - $700.

c) $200.

d) - $1,000.

e) - $400.

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  1. 20 March, 21:54
    0
    b) - $700.

    Explanation:

    The economic profit or loss will be:

    economic result = revenue - total cost

    Where:

    fixed cost + variable cost = total cost

    400 + 600 = 1,000

    revenue = units x selling price per unit

    100 units x $3 = $300

    economic result = revenue - total cost = 300 - 1,000 = - 700

    The company is on the optimal level, marginal revenue = marginal cost at 100 units of output.

    But, it is not selling at the correct price. It should sale at a higher price.
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