Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs:
-Refer to Table 14-11. In order to maximize profits, the firm should stop producing after it makes the
A)first unit.
B)second unit.
C)fourth unit.
D)fifth unit.

Question

Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs: 
-Refer to Table 14-11. In order to maximize profits, the firm should stop producing after it makes the
A)first unit. 
B)second unit. 
C)fourth unit. 
D)fifth unit.

Quizplus · Accepted Answer

The firm should produce where marginal cost equals marginal revenue to maximize profits. In this case, that occurs at the fifth unit, where both MC and MR are equal to $6. At any output level below 5, the marginal revenue is higher than the marginal cost, meaning the firm can earn more by increasing output. But beyond the fifth unit, marginal revenue drops below marginal cost, so producing any additional units would decrease profits. Therefore, the best choice for the firm is to produce the first 5 units and then stop.

Table 14-11 Suppose That a Firm in a Competitive Market Faces the Faces