Upward-sloping marginal cost curve

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1. The Humdrum Company produced 10,000 doldrums last year. It sold the doldrums at a price of $5 each, but the average cost of producing each doldrum was only $3. With a profit margin of $2 per unit, should the company have produced more if it wanted to maximize profits?

2. "In a constant cost industry each firm has an upward-sloping marginal cost curve, yet all the firms together -- i.e. the industry -- have a horizontal supply curve." Explain why there is no contradiction in this statement.

3. Why does the firm in pure competition operate in the rising portion of its marginal cost curve? Why not produce where marginal cost is falling?

4. Why are the demand and marginal revenue curves of a competitive firm identical? What would have to be true of Total Variable Cost for average variable cost and marginal cost to be identical?

Reference no: EM131464966

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