Table 14-8
Suppose that a firm in a competitive market faces the following revenues and costs:
-Refer to Table 14-8. In order to maximize profits, the firm will produce
A)1 unit of output because marginal cost is minimized.
B)4 units of output because marginal revenue exceeds marginal cost.
C)5 units of output because marginal revenue equals marginal cost.
D)7 units of output because total revenue is maximized.

Question

Table 14-8
Suppose that a firm in a competitive market faces the following revenues and costs: 
-Refer to Table 14-8. In order to maximize profits, the firm will produce
A)1 unit of output because marginal cost is minimized. 
B)4 units of output because marginal revenue exceeds marginal cost. 
C)5 units of output because marginal revenue equals marginal cost. 
D)7 units of output because total revenue is maximized.

Quizplus · Accepted Answer

The firm will produce where marginal revenue equals marginal cost in order to maximize profits. At 5 units of output, both marginal revenue and marginal cost are $40, which means that any additional units produced after this point will result in a decrease in profits. Therefore, producing 5 units of output is the best choice for the firm.

Table 14-8 Suppose That a Firm in a Competitive Market Faces the Faces