A firm producing good Y recently increased monthly production from1,500 units to2,000 units. This had no impact on the market price of good Y. At the new production level of2,000 units, thefirm's average cost is$3.5 while its marginal cost of production is$4. The marginal revenue however is fixed at$5 for all levels of output. Jake Williamson is the operations head of the firm. Jake feelsthat, since the firm has thecapacity, it should have increased production further to2,500 units which would have maximized profits. On the otherhand, Mathew Hayden of the market research team anticipates an increase in price to$5.5 in the near future. He therefore claims that the firm may not be maximizing economic profit in the short run even at2,500 units.
Which of the following is most strongly implied by this information?
A.The demand curve currently faced by the firm is horizontal at $4.
B.At the current level of production, the firm is making a profit of $3,000.
C. Mathew feels that the demand curve faced by the firm will shift downward.
D. The current price of good Y is equal to $4.
Please explain too
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Sep 21, 2019EXPERT
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