A firm asks for your help in the analysis of some production decisions. The firm would like to know whether its decision to increase total production from 6,000 to 8,000 units was a wise move. It is revealed that at 6,000 units produced, the production costs for the firm totaled 58,000. At 8,000 units produced, production costs now total 85,000. You have performed additional research and discovered that each unit that the firm produced sold for an average of 10 per unit. If the firm wants to maximize profits, should it continue production at this level?
No, because marginal cost is now greater than marginal revenue. THIS ONE
Yes, because marginal cost is now greater than marginal revenue.
No, because marginal cost is now less than marginal revenue.
Yes, because marginal cost is now less than marginal revenue.
To determine whether the firm should continue production at this level in order to maximize profits, we need to compare the marginal cost to the marginal revenue.
The marginal cost represents the additional cost incurred by producing one more unit. In this case, the additional production of 2,000 units (from 6,000 to 8,000) resulted in a production cost increase of 27,000 (from 58,000 to 85,000). Therefore, the marginal cost is 27,000/2,000 = 13.5 per unit.
On the other hand, the marginal revenue represents the additional revenue earned by selling one more unit. Since each unit sells for an average of 10, the marginal revenue is 10 per unit.
Comparing the marginal cost of 13.5 per unit to the marginal revenue of 10 per unit, we can conclude that the firm should not continue production at this level. The marginal cost is greater than the marginal revenue, which means that producing additional units will result in higher costs than the additional revenue generated. This would decrease the firm's overall profit.
Therefore, the correct answer is: No, because marginal cost is now greater than marginal revenue.