Question

A firm producing good y recently increased monthly production from​ 1,500 units to​ 2,000 units. this had no impact on the market price of good y. at the new production level of​ 2,000 units, the​ firm's average cost is​ $3.5 while its marginal cost of production is​ $4. the marginal revenue however is fixed at​ $5 for all levels of output. jake williamson is the operations head of the firm. jake feels​ that, since the firm has the​ capacity, it should have increased production further to​ 2,500 units which would have maximized profits. on the other​ hand, mathew hayden of the market research team anticipates an increase in price to​ $5.5 in the near future. he therefore claims that the firm may not be maximizing economic profit in the short run even at​ 2,500 units

Answer 1

The following that most strongly implied by this information is that at the current level of production, the firm is making a profit of $3000. Jake and Mathew will most likely agree on The firm should increase production from the current level. Mathew is assuming​ that no new firms enter the market in the short run.