Question

For a price taker, market equilibrium price is $50. At 1,000 units, MR-MC, ATC $45, and AVC $30. This price taker will Select one: a. maximize its profits if it produces fewer than 1,000 units. b. earn $50,000 profits if it produces 1,000 units of the good. c. maximize its profits if it produces more than 1,000 units d. shut down its operation, and by doing this minimize its losses. e. earn $5,000 profits if it produces 1,000 units Next page e MacBook D. 17 F4 ESI F2 F31 & $ ## 7 4 2 T Y R W E CO CO LO

Answer 1

Answer:e. Earns $5,000 profits if it produces 1,000 units.

For a price taker, market equilibrium price(P) = $50.

At 1000 units of output, MR = MC ; ATC = $45 ; and AVC = $30

A price taker firm produces the profit-maximizing level of output, where MR = MC

Here, we see that at 1,000 units of output, the market price is $50, ATC = $45, and AVC= $30 ; ans also

MR = MC. So the firm is at profit-maximizing level of output. The firm will produce this level of output because Price($50) $>$ ATC($45) . Again price is greater than AVC($30). Firm shut-downs its production, when price is less than AVC.

At 1,000 units of output the price is greater than ATC by $50 - $45 = $5. So the firm is earning profits of $5 per unit of output.

For 1 unit of output, the firm's profit is $5.

$\therefore$ For 1,000 units of output, the firm's profit is $5 * 1000 = $5,000.

So, the price taker will earn $5,000 profits  if it produces 1,000 units.

If the firm produces less than 1,000 units, it can earn more revenue by increasing output. If it produces more than 1,000 units, its MC will be greater than MR. The firm will earn then loss.So at market price $50. the firm's profit-maximizing level of output is 1,000 units, where MR=MC, and the firm earns $5,000 as profit.

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