Tomato Farms is selling tomatoes in a purely competitive market. Its output is 5000 bushels, which sell for $15 a bushel. At this level of output, the marginal cost is $15 a bushel and average total cost is $14.50 a bushel. Should the firm increase
output, decrease output, or not produce? Why?
What will be an ideal response?
The firm should produce at the 5000-bushel level of output because the marginal revenue is just equal to the marginal cost and the marginal revenue or price is greater than the average total cost, so the firm is maximizing its profit.
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