Question

Assume a purely competitive firm is selling 200 units of output at $3 each. At this output, its total fixed cost is $100 and its total variable cost is $350. This firm is incurring losses. is maximizing its profit. is making a profit, but not necessarily the maximum profit. should shut down in the short run.

Answer 1

Answer:

correct option is maximizing its profit

Explanation:

given data

firm is selling  = 200 units

output = $3 each

fixed cost = $100

variable cost = $350

solution

we get here Total average cost that is

Total average cost = variable cost + fixed cost .............1

put here value

Total average cost  = 350 + 100

Total average cost  = $450

and

Cost per unit will be

Cost per unit = average cost ÷ no of units   ............2

Cost per unit = 450  ÷  200

Cost per unit = $2.25

so here firm is incurring per units is $2.25 but here earning per unit is $3 .

so that here firm is earning economic profit

as here market price is greater than earning maximum profit

so correct option is maximizing its profit