question archive A firm has hired you as a consultant
A firm has hired you as a consultant
Subject:MarketingPrice:2.88 Bought3
A firm has hired you as a consultant. Their only concern is to maximize profits. This firm is not in a perfectly competitive industry; they have some control over price. They are selling 90 units at a price of $10, and at the end of the day, they are currently earning revenues of $900. Their costs are $1000. It costs about $10 to produce another unit. Based on your analysis, what would you advise them to do?
A. increase price and quantity
B. decrease price and quantity
C. shutdown
D. increase price and decrease quantity
E. decrease price and increase quantity
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The correct option is A. increase price and quantity
Explanation:
According to the given information, 90 units of a product can be produced at $1000, which implies that the unit cost is $11.11. It is also given that an additional unit can be produced at the cost of $10. Therefore, a producer can be encouraged to produce more units as it decreases the marginal cost.
Hence, as a consultant, one will suggest, increasing the quantity as it decreases the marginal cost, and also suggest, increasing the price level as the firm is not producing at the competitive level and can influence the market price.
