Question

Winonas Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day. If Winonas fixed d Costs unexpectedly increase and the market price remains constant, then the short run profit-maximizing level of 00 output n

Select one

a, is less than 1,000 pounds.

b. is still 1,000 pounds.

c. is more than 1,000 pounds

d. becomes zero.

Answer 1

Profit maximization occurs where Marginal Revenue = Marginal Costs .

Here fixed costs are changing . Fixed costs in the short run should be considered as sunk costs . So they should not be taken into consideration while making short run profit maximizing output decisions . We know that MC curve does not depend on fixed costs , it depends on changes in variable costs .

Since the market price is same as before , so MR does not change . Hence MR = MC at the same level .

Answer : b) is still 1,000 pounds .