Table 7.1
$$\begin{array} { | c | c | c | }
\hline \text { Quantity } & \begin{array} { c }
\text { Total Cost } \
\text { (dollars) }
\end{array} & \begin{array} { c }
\text { Variable Cost } \
\text { (dollars) }
\end{array} \
\hline 0 & \$ 1000 & \$ 0 \
\hline 100 & 1360 & 360 \
\hline 200 & 1560 & 560 \
\hline 300 & 1960 & 960 \
\hline 400 & 2760 & 1760 \
\hline 500 & 4000 & 3000 \
\hline 600 & 5800 & 4800 \
\hline
\end{array}$$ Table 7.1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units.
-Refer to Table 7.1.If the market price of each camera case is $8,the profit-maximising quantity is
A) 300 units.
B) 400 units.
C) 500 units.
D) 600 units.

Question

Table 7.1
 $$\begin{array} { | c | c | c | } 
\hline \text { Quantity } & \begin{array} { c } 
\text { Total Cost } \
\text { (dollars) }
\end{array} & \begin{array} { c } 
\text { Variable Cost } \
\text { (dollars) }
\end{array} \
\hline 0 & \$ 1000 & \$ 0 \
\hline 100 & 1360 & 360 \
\hline 200 & 1560 & 560 \
\hline 300 & 1960 & 960 \
\hline 400 & 2760 & 1760 \
\hline 500 & 4000 & 3000 \
\hline 600 & 5800 & 4800 \
\hline
\end{array}$$ Table 7.1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units.
-Refer to Table 7.1.If the market price of each camera case is $8,the profit-maximising quantity is
A) 300 units.
B) 400 units.
C) 500 units.
D) 600 units.

Quizplus · Accepted Answer

To determine the profit-maximizing quantity, we need to find the output level where the marginal cost (MC) is equal to the market price (P). This is because at this level of output, the additional revenue from producing one more unit (P) is exactly equal to the additional cost of producing that unit (MC).

From the table, we can see that the marginal cost of producing 400 units is $8. At this level of output, the MC is equal to the market price of $8. Therefore, the profit-maximizing quantity is 400 units.

At any higher level of output, the MC would be greater than the market price, meaning that the firm would be losing money on each additional unit produced. At any lower level of output, the MC would be lower than the market price, so the firm could increase profits by producing more units until reaching 400 units.

Table 71 Table 71 Shows the Short-Run Cost Data of a Perfectly Competitive