Refer to the data provided in Table 9.4 below to answer the question(s) that follow.
Table 9.4
$$\begin{array} { c c c c c c c }
\text { q } & \text { TFC } & \text { TVC } & \text { TC } & \text { MC } & \text { AVC } & \text { ATC } \
\hline 0 & \$ 100 & \$ 0 & \$ 100 & - - & - - & - - \
\hline 1 & 100 & 40 & 140 & 40 & 40 & 140 \
\hline 2 & 100 & 60 & 160 & 20 & 30 & 80 \
\hline 3 & 100 & 90 & 190 & 30 & 30 & 63.33 \
\hline 4 & 100 & 124 & 224 & 34 & 31 & 56 \
\hline 5 & 100 & 180 & 280 & 56 & 36 & 56 \
\hline 6 & 100 & 264 & 364 & 84 & 44 & 60.67 \
\hline 7 & 100 & 372 & 472 & 108 & & 67.42 \
\hline
\end{array}$$
-Refer to Table 9.4. If the market price is $40, then to maximize profits this firm should produce
A) zero units of output.
B) one unit of output.
C) two units of output.
D) an output level of about four.

Question

Refer to the data provided in Table 9.4 below to answer the question(s) that follow.
Table 9.4
 $$\begin{array} { c c c c c c c } 
\text { q } & \text { TFC } & \text { TVC } & \text { TC } & \text { MC } & \text { AVC } & \text { ATC } \
\hline 0 & \$ 100 & \$ 0 & \$ 100 & - - & - - & - - \
\hline 1 & 100 & 40 & 140 & 40 & 40 & 140 \
\hline 2 & 100 & 60 & 160 & 20 & 30 & 80 \
\hline 3 & 100 & 90 & 190 & 30 & 30 & 63.33 \
\hline 4 & 100 & 124 & 224 & 34 & 31 & 56 \
\hline 5 & 100 & 180 & 280 & 56 & 36 & 56 \
\hline 6 & 100 & 264 & 364 & 84 & 44 & 60.67 \
\hline 7 & 100 & 372 & 472 & 108 & & 67.42 \
\hline
\end{array}$$
-Refer to Table 9.4. If the market price is $40, then to maximize profits this firm should produce
A) zero units of output.
B) one unit of output.
C) two units of output.
D) an output level of about four.

Quizplus · Accepted Answer

To maximize profits, a firm should produce where marginal cost (MC) is equal to or just below the market price, as long as it covers the average variable cost (AVC) to avoid losses. In this case, the market price is $40. Looking at the MC column, producing 4 units has an MC of $34, which is the closest to but below the market price of $40, and it still covers the AVC of $31. Producing more than 4 units would result in an MC higher than the market price, which would not maximize profits.

Refer to the Data Provided in Table 9 -Refer to Table 9