A firm in a competitive market has the following cost structure:
Output
Total Costs
0
$10
1
$12
2
$15
3
$19
4
$24
5
$30
6
$37
7
$46
8
$55
9
$65
If the market price is $8, how many units of output should the firm produce to maximize profit?
A)5 units
B)6 units
C)7 units
D)8 units

Question

Quizplus · Accepted Answer

To maximize profit, the firm should produce where marginal cost (MC) equals market price. The MC for producing the 6th unit is $7 (from $30 to $37), which is less than the market price of $8, while the MC for the 7th unit is $9 (from $37 to $46), which is more than the market price. Thus, the firm should produce 6 units.

A Firm in a Competitive Market Has the Following Cost