Suppose a firm producing table lamps has the following costs:
| Quantity |
Averrage Total Cost |
| 1,000 |
$15.00 |
| 2,000 |
9.75 |
| 3,000 |
8.25 |
| 4,000 |
7.5 |
| 5,000 |
7.76 |
| 6,000 |
8.5 |
| 7,000 |
9.75 |
| 8,000 |
10.5 |
| 9,000 |
12 |
Ben and Jerry are managers at the company, and they have this discussion:
Ben: We should produce 4,000 lamps per month because that will minimize our average costs.
Jerry: But shouldn't we maximize profits rather than minimize costs? To maximize profits, don't we need to take demand into account?
Ben: Don't worry. By minimizing average costs, we will be maximizing profits. Demand will determine how high the price we can charge will be, but it won't affect our profitmaximizing quantity.
Evaluate the discussion between the two managers.