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Suppose Robin's Clock Works produces in a perfectly competitive market. Suppose the average total cost of clocks is $95, the average variable cost of clocks is $90, and the price of clocks is $85. If the firm is producing the level of output where marginal cost equals price, then in the short-run, the firm:

A) can increase profit by increasing output.
B) is earning a positive economic profit.
C) should continue to produce since total revenue exceeds the total variable cost.
D) should shut down.

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Related questions

a. Your firm is producing a good in a perfectly competitive market. If you know that when you produce 25 units per day, your total costs are $100, and when you produce 26 units, your total costs are $110. The market price for the product is $15. What should you do to maximize profits?

b. Suppose Robin's Clock Works produces in a perfectly competitive market. Suppose the ATC of clocks is $95, the AVC is $90 and the price of clocks is $85. The firm is currently producing at the level of output where MC equals price. What should the firm do to maximize its profits?

c. Suppose Peter's Clock Works produces in a perfectly competitive market. Suppose the ATC of clocks is $85, the AVC is $80 and the price of clocks is $82.50. The firm is currently producing at the level of output where MC equals price. What should the firm do to maximize its profits?

d. Austin sells golf balls in a perfectly competitive market. At its current level of golf ball production, his marginal costs equal to $1, and AVC is rising. If the market price of golf balls is $2, what should Austin do to maximize profits?

e. Austin sells golf balls in a perfectly competitive market. At its current level of golf ball production, his marginal costs equal to $2, and AVC is rising. If the market price of golf balls is $1, what should Austin do to maximize profits?

1) Suppose that the demand curve faced by a particular firm is given by q = 300 - 5P. Could this be a perfectly competitive firm?

2) The market for wall clocks is perfectly competitive, and the current market price of a wall clock is $24. A particular firm has a short-run marginal cost of production of MC = 0.75q, where q is the number of clocks that it produces.

a. If it is optimal for the firm to produce a positive amount of output in the short run, how much should it produce?

b. Suppose that the firm has fixed costs of $3,000, and its average variable cost when producing the number of clocks found in part (a) is $20. Should the firm produce the amount that you found in part (a) or shut down (produce q = 0)?

c. Suppose instead (for this and all subsequent questions) that the firm has fixed costs of $240, and its variable cost when producing the number of clocks found in part (a) is $400. What is the firm's profit if it produces this amount of output?

d. Under the conditions described in part (c), if this is a constant-cost industry and the demand curve does not change over time, will firm enter this market in the long run or will firms exit this market in the long run?

In a perfectly competitive industry, the market price is $25. A firm is currently producing 10,000 units of output, its average total cost is $28, its marginal cost is
$20, and its average variable cost is $20. Given these facts, explain whether the following statements are true or false:
a. The firm is currently producing at the minimum average variable cost.
b. The firm should produce more output to maximize its profit.
c. Average total cost will be less than $28 at the level of output that maximizes the firm's profit.
(Hint: You should assume normal U-shaped cost curves for this problem.)

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