Answer to Question #123026 in Macroeconomics for Xyz

Question

At its current level of production a profit-maximizing firm in a competitive market receives $12.50 for each unit it produces and faces an average total cost of $10. At the market price of $12.50 per unit, the firm’s marginal cost curve crosses the marginal revenue curve at an output level of 1,000 units. What is the firm’s current profit? What is likely to occur in this market and why?

Answer 1

profit=marginal revenue - marginal cost

 Profit = (12.50-10.00) * 1000= 2,500.

Thus, the current profit =2,500.The marginal revenue of this firm is greater than the marginal cost; it makes the firm to continue its operations in this market.