A firm has MR = $70 and MC = $20 + Q. Fixed costs are $175.
(a) If the firm is currently producing 30 units, what are its marginal cost and marginal revenue at the current output level?
(b) Is the firm maximizing profits? If so, how can you tell? If not, what can the firm do to increase profits?
(a) Plugging 30 into the marginal cost formula gives MC = $50. The firm's marginal revenue equals $70, independent of the quantity that the firm produces.
(b) No, the firm is not maximizing profits since its marginal revenue is not equated to its marginal cost. The firm should increase its output to the level where MR=MC. That is, the firm should produce 50 units.
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A. supply and demand. B. monetary policy. C. purchasing power parity. D. the domestic inflation rate.
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Indicate whether the statement is true or false
If a monopoly's Lerner Index exceeds 1, then
A) it is earning maximum profit. B) it has ultimate market power. C) it must be pricing below marginal cost. D) marginal revenue is negative.