%253Cp%2520class%253D%2522MsoNormal%2522%253E%253Cspan%2520class%253D%2522c1%252

Question

%253Cp%2520class%253D%2522MsoNormal%2522%253E%253Cspan%2520class%253D%2522c1%2522%253EThe%2520Zebra%252C%2520Inc.%252C%2520is%2520selling%250Ain%2520a%2520purely%2520competitive%2520market.%2520%2520Its%2520output%2520is%2520250%2520units%252C%250Awhich%2520sell%2520for%2520%25242%2520each.%2526nbsp%253B%2520At%2520this%2520level%2520of%2520output%252C%2520marginal%250Acost%2520is%2520%25242%2520and%2520average%2520variable%2520cost%2520is%2520%25242.25.%2526nbsp%253B%2520What%2520short-run%250Aproduction%2520decision%2520should%2520this%2520firm%2520make%252C%2520and%2520what%2520is%2520their%250Aresulting%2520profit%2520or%2520loss%253F%253C%252Fspan%253E%253C%252Fp%253E%250A

Explanation / Answer

P = $2

Q = 250

Total Revenuue = 250*$2 = $500

MC = $2

AVC = $2.25

VC = $2.25*250 = $562.50

VC>TR, AVC>MC

The company shall increase its output so that VC reduces to its minimm level such that the equilibrium level at which AVC =MC =P is reached maximizing the profits

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