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"Farley Frozen Yogurt is a perfectly competitive firm. The market price of a frozen yogurt cake is $7. Farley sells 200 frozen yogurt cakes. Its AVC is $6, and its AFC is $4."

Suppose the marginal cost for frozen yoghurt cake is $7. In this case, Farley frozen youghurt should:

(A) produce less.
(B) produce the same quantity
(C) produce more.
(D) non produce

Respuesta :

Answer:

B. Produce the same quantity

Explanation:

Perfect Competition is market form with many buyers & sellers, where  identical goods are sold at uniform prices .

In this market : Marginal Revenue (MR)  = Average Revenue (AR) = Price  (P) , as a horizontal curve parallel to X axis.

Producer is at  profit maximising equilibrium where : MR = MC (Marginal Cost). Producer tends to stay at this production point.

So, by above 2 equations :  MC = [ MR = P ] is the equilibrium for Farley Frozen Yogurt .

As given : Price = $7 & MC = $7 satisfies above equilibrium equality condition. Hence , this is Farley Frozen Yogurt's Producer Equilibrium & it would tend to produce the same quantity.

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