Georgetown Cupcake in Washington, D.C. bakes delicious gourmet cupcakes. Cupcake bakeries are a (perfectly) competitive business in this area so keeping costs under control matters. At its current production level, Georgetown Cupcake has hired MBA students to analyze the following data estimates:

• Cupcake Price: $4
• Quantity sold per week: 150
• Total variable cost per week = $650
• Average fixed cost: $1
• Georgetown Cupcake is producing where AVC is minimized

Based on this data, what is the best advice the students can give Georgetown Cupcake?

1)You are already doing the best you can, given costs and price, so keep production at the same level.

2) Increase your cupcake output to increase total revenue; you face an elastic demand curve, so the only way to increase your revenue is to sell more cupcakes.

3) Decrease your cupcake output to decrease your total costs, then you can cover your operating expenses.

4) Shut down immediately.

5) We need more information.