Suppose a firm producing table lamps has the following​ costs: Quantity Average Total Cost ​1,000 ​$15.00 ​2,000 9.75 ​3,000 8.25 ​4,000 7.50 ​5,000 7.75 ​6,000 8.50 ​7,000 9.75 ​8,000 10.50 ​9,000 12.00 Ben and Jerry are managers at the​ company, and they have this​ discussion:   Ben​: We should produce​ 4,000 lamps per month because that will minimize our average costs.   Jerry​: But​ shouldn't we maximize profits rather than minimize​ costs? To maximize​ profits, don't we need to take demand into​ account?   Ben​: ​Don't worry. By minimizing average​ costs, we will be maximizing profits. Demand will determine how high the price we can charge will​ be, but it​ won't affect our​ profit-maximizing quantity. Evaluate the discussion between the two managers. ​Ben's assertion that the firm should produce the quantity of lamps where average costs are minimized is   A. incorrect because profits are instead maximized at the quantity where marginal cost equals price​, which may be different since price depends on consumer demand.   B. correct because this is the same quantity that maximizes profits where marginal cost equals marginal revenue since consumer demand does not affect marginal cost or marginal revenue.   C. incorrect because profits are instead maximized at the quantity where marginal cost equals marginal​ revenue, which may be different since the marginal cost of production is greater than the average cost when average costs are minimized.   D. correct because this level of production occurs on the​ firm's minimum efficient​ scale, which is unaffected by consumer demand.   E. incorrect because profits are instead maximized at the quantity where marginal cost equals marginal​ revenue, which may be different since marginal revenue depends on consumer demand.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose a firm producing table lamps has the following​ costs:
Quantity
Average Total Cost
​1,000
​$15.00
​2,000
9.75
​3,000
8.25
​4,000
7.50
​5,000
7.75
​6,000
8.50
​7,000
9.75
​8,000
10.50
​9,000
12.00
Ben and Jerry are managers at the​ company, and they have this​ discussion:
 
Ben​:
We should produce​ 4,000 lamps per month because that will minimize our average costs.
 
Jerry​:
But​ shouldn't we maximize profits rather than minimize​ costs? To maximize​ profits, don't we need to take demand into​ account?
 
Ben​:
​Don't worry. By minimizing average​ costs, we will be maximizing profits. Demand will determine how high the price we can charge will​ be, but it​ won't affect our​ profit-maximizing quantity.
Evaluate the discussion between the two managers.
​Ben's assertion that the firm should produce the quantity of lamps where average costs are minimized is
 
A.
incorrect because profits are instead maximized at the quantity where
marginal cost
equals
price​,
which may be different since price depends on consumer demand.
 
B.
correct because this is the same quantity that maximizes profits where marginal cost equals marginal revenue since consumer demand does not affect marginal cost or marginal revenue.
 
C.
incorrect because profits are instead maximized at the quantity where marginal cost equals marginal​ revenue, which may be different since the marginal cost of production is
greater
than the average cost when average costs are minimized.
 
D.
correct because this level of production occurs on the​ firm's minimum efficient​ scale, which is unaffected by consumer demand.
 
E.
incorrect because profits are instead maximized at the quantity where marginal cost equals marginal​ revenue, which may be different since marginal revenue depends on consumer demand.
 
 
 
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