The table given below shows the price charged by a firm and the marginal cost incurred by it for the different levels of the output. Table 24.2
Assume that the firm described in Table 24.2 is incurring a total cost of $25 at the profit-maximizing output level.The firm will:
A)lose $10 in the short run.
B)break even.
C)earn a profit of $50.
D)earn a profit of $30.
E)earn a profit of $55.

Question

The table given below shows the price charged by a firm and the marginal cost incurred by it for the different levels of the output. Table 24.2
 Assume that the firm described in Table 24.2 is incurring a total cost of $25 at the profit-maximizing output level.The firm will:
A)lose $10 in the short run. 
B)break even. 
C)earn a profit of $50. 
D)earn a profit of $30. 
E)earn a profit of $55.

Quizplus · Accepted Answer

To determine the profit-maximizing output level, we need to look for the output level where Marginal Cost (MC) equals Marginal Revenue (MR), which is the same as the price in a perfectly competitive market. 
From the table, we can see that the MC equals Price at an output of 6 units. Therefore, the profit-maximizing output level is 6 units. 
At this output level, the Total Cost (TC) incurred by the firm is $25.
Total Revenue (TR) is Price multiplied by Quantity, which is $40 (the price) multiplied by 6 (the quantity). Therefore, TR is $240. 
Profit is the difference between TR and TC, which is $240 - $25 = $215. 
Therefore, the firm will earn a profit of $215, which means the correct answer is D.

The Table Given Below Shows the Price Charged by a Firm