Answer :
To maximize profits with a market price of $2.50 and a marginal cost of $2, the business should continue producing until marginal cost rises to equal the market price, ensuring profit on each additional unit.
In order to maximize profits for a business producing bags of potato chips, where the marginal product is falling, and the marginal cost equals $2, producers should expand their production up to the point at which marginal cost equals marginal benefit (the market price).
In this case, with a market price of $2.50, the price is above the marginal cost by $0.50, implying that the business can still cover its variable costs and make a profit on each additional unit produced. Hence, the business should continue to produce until these marginal quantities no longer provide a profit, that is, until the marginal cost rises to meet the market price.
As a similar example, consider a scenario with radishes. If the market price for radishes drops to $0.18 per pound which is below the average total cost but still above the average variable cost, the producer should continue to produce an output at which marginal cost equals marginal revenue. This ensures that while the business may not cover all its fixed costs, it minimizes losses by covering variable costs and contributing marginally to fixed costs