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Licorice industry is competitive. The current market price of a string of licorice is $0.50. At this price, a firm decides to produce 2 million strings of licorice this month.
The total fixed cost per month is $400,000 and the average variable cost of $0.40.
a. What is the marginal cost of a string at 2 million strings of production level?
b. Assuming that one month is considered a short run, is the firm's decision to produce 2 million strings of licorice this month right or wrong?
Explain the reason.
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