A firm in a competitive market has the following cost structure:
Output
ATC
0
--
1
$10
2
$8
3
$7
4
$8
5
$10
If the firm's fixed cost of production is $3, and the market price is $10, how many units should the firm produce to maximize profit?
A)1 unit
B)2 units
C)3 units
D)4 units

Question

Quizplus · Accepted Answer

The firm should produce where marginal cost equals market price. At 3 units, ATC is $7, which is less than the market price of $10, maximizing profit.

A Firm in a Competitive Market Has the Following Cost