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Question
A perfectly competitive firm faces a market clearing price of $150 per unit. Average variable costs are at the minimum value of $200 per unit at an output rate of 100 units. Marginal cost equals $150 per unit at an output rate of 75 units. It can be concluded that the short -run profit-maximizing output rate is
A) 75 units, at which the firm earns zero economic profits per unit sold.
B) 75 units, at which the firm earns $50 in economic profits per unit sold.
C) 100 units, because marginal cost equals average variable costs.
D) 0 units, because price is less than average variable costs.
Answer
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