3.

a. In a competitive industry, the market-determined price is $12. For a firm currently producing 50 units of output, short-run marginal cost is $15, average total cost is

$14, and average variable cost is $7. Is this firm making the profit-maximizing decision?

Why or why not? If not, what should the firm do?

b. In a different competitive market, the market-determined price is $25. A firm in this market is producing 10,000 units of output, and, at this output level, the firm’s average total cost reaches its minimum value of $25. Is this firm making the profitmaximizing decision? Why or why not? If not, what should the firm do?

c. In yet another competitive industry, the market-determined price is $60. For a firm currently producing 100 units of output, short-run marginal cost is $50, average total cost is $95, and the average variable cost is $10. This firm also incurs total quasifixed costs of $7,000 (or $70 per unit). Is this firm making the profit-maximizing decision? Why or why not? If not, what should the firm do? (Hint: You will need to compute total avoidable cost.)