1. A competitive firm currently produces and sells 500 units of output. Its total revenue is $3,500; the marginal cost of producing the 500^thunit of output is $5.75; and the average total cost of producing the 500^thunit of output is $4.00. Should the firm increase or decrease output in order to increase its profit?
2. A firm maximizes its profit by selling 2,500 units of output with an average revenue of $6.99. The firm's marginal cost at 2,500 units of output is _______. Explain.