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The licorice industry is competitive. The current market price of a string of licorice is $0.40. At this price, a firm decides to produce 2 million strings of licorice this month. The total fixed cost per month is $500,000 and the total variable cost is $600,000.

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, the firm's decides to produce 2 million strings of licorice this month. Why does the firm decide to produce despite the fact that the firm is losing money by producing 2 million strings?

Microeconomics, Economics

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