The answer is C, please explain why The equilibrium price of a guidebook is $35

Question

The answer is C, please explain why

The equilibrium price of a guidebook is $35 in the perfectly competitive guidebook industry. Our firm produces 10,000 guidebooks for an average total cost of $38, marginal cost of $30, and average variable cost of $30. Our firm should:

A) raise the price of guidebooks, because the firm is losing money.

B) keep output the same, because the firm is producing at minimum average variable cost

C) produce more guidebooks, because the next guidebook produced increases profit by $5.

D) shut down, because the firm is losing money.

Explanation / Answer

Answer

C) produce more guidebooks, because the next guidebook produced increases profit by $5

The firm maximizes profit at MC=P, where P is constant and MC is increasing so the output should be increased to increase profit assuming MC is constant it will increase Profit by $5

note:

Option c may be correct partially because(if the MC is not constant)

the marginal profit=MR-MC........... for perfect competitive firm MR=P

=35-30=$5

but the MC increases for next unit so it cannot be $5, it should be less than $5

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