Let C(Q) denote the cost of producing Q units per month of a commodity. What is...
Let C(Q) denote the cost of producing Q units per month of a
commodity. What is the interpretation of C'(1000) =25? Suppose the
price obtained per unit is fixed at 30 and that the current output
per month is 1000. Is it profitable to increase
production?
Homework Answers
Answer
Marginal cost
Yes,
=========
Assuming the firm is in perfect competition as the price is fixed.
C'(1000) =25 is a marginal cost of 1000th unit produced
The profit is maximum at P=MC but the MC <P so the firm should increase production to maximize profit
The price is a horizontal curve and MC upward sloping at the profit-maximizing level of output so the firm should increase the output upto P=MC.
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