Question

Alex's Furniture Mart produces and sells tables in a perfectly competitive market. When Alex's Furniture Mart produces and sells 250 tables, its marginal cost is equal to $200, and AVC is rising. If the market price of tables is equal to $150, Alex's Furniture Mart should:
a. raise the price of its tables
b. increase its level of table production
c. continue producing 250 tables
e. decrease its level of table production

Answer 1

Answer:

e. decrease its level of table production

Explanation:

MC = 200.

Market price = 150 which cannot be changed by any firm.

MC is greater than price = MR then in order to maximise profit MR has to be equal to marginal cost

MC has to be decreases to $150 which is possible only when it reduces output.