Table 7.4
$$\begin{array} { | c | c | c | c | }
\hline \text { Quantity } & \begin{array} { c }
\text { Average } \
\text { Fixed Cost }
\end{array} & \begin{array} { c }
\text { Average } \
\text { Variable Cost }
\end{array} & \begin{array} { c }
\text { Marginal } \
\text { Cost }
\end{array} \
\hline 20 & \$ 40 & \$ 18 & \$ 18 \
\hline 40 & 20 & 14 & 10 \
\hline 60 & 13.1 & 16 & 20 \
\hline 80 & 10 & 22 & 40 \
\hline 100 & 8 & 30 & 62 \
\hline 120 & 6.61 & 40 & 90 \
\hline
\end{array}$$ Table 7.4 shows the short-run cost data of a perfectly competitive firm. Assume that output can only be increased in batches of 20 units.
-Refer to Table 7.4.If the market price is $45,how many units will the firm produce?
A) 60 units
B) 80 units
C) 100 units
D) 120 units

Question

Table 7.4
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Quantity } & \begin{array} { c } 
\text { Average } \
\text { Fixed Cost }
\end{array} & \begin{array} { c } 
\text { Average } \
\text { Variable Cost }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Cost }
\end{array} \
\hline 20 & \$ 40 & \$ 18 & \$ 18 \
\hline 40 & 20 & 14 & 10 \
\hline 60 & 13.1 & 16 & 20 \
\hline 80 & 10 & 22 & 40 \
\hline 100 & 8 & 30 & 62 \
\hline 120 & 6.61 & 40 & 90 \
\hline
\end{array}$$ Table 7.4 shows the short-run cost data of a perfectly competitive firm. Assume that output can only be increased in batches of 20 units.
-Refer to Table 7.4.If the market price is $45,how many units will the firm produce?
A) 60 units
B) 80 units
C) 100 units
D) 120 units

Quizplus · Accepted Answer

To determine the profit-maximizing output level, the firm should produce at the point where marginal cost equals marginal revenue, which in this case is $45. From the table, we see that the marginal cost of producing 80 units is $45, so this is the optimal output level. Production of 60 units would result in a profit of $600 ($2,700 in revenue minus $2,100 in costs), while production of 100 units would result in a loss of $300 ($4,500 in revenue minus $4,800 in costs), so neither of these options are optimal.

Table 74 Table 74 Shows the Short-Run Cost Data of a Perfectly Competitive