Answer the question on the basis of the following data confronting a firm: $\begin{array}{l}
\begin{array}{ccr}
&&\text { Marginal }\
\text { Output } & & \text { Reven } \
\hline
0&&--\
1 & & \$ 16 \
2 & & 16 \
3 & & 16 \
4 & & 16 \
5 & & 16
\end{array}
\begin{array}{c}
Marginal\
Cost\
\hline
--\
\$ 10 \
9 \
13 \
17 \
21
\end{array}
\end{array}$ Refer to the data.If the firm's minimum average variable cost is $10,the firm's profit-maximizing level of output would be:
A) 2.
B) 3.
C) 4.
D) 5.

Question

Quizplus · Accepted Answer

The profit-maximizing level of output for a firm is determined where its marginal revenue (MR) equals its marginal cost (MC), provided that MR ≥ MC. From the data, the marginal revenue is constant at $16 for each unit of output. The marginal costs for each unit of output are $10, $9, $13, $17, and $21, respectively. The firm maximizes profit by producing up to the point where MR = MC, which occurs at the output level just before the MC exceeds the MR. This happens at the output level of 3, where the MC is $13, equal to the MR of $16. Producing beyond this point, the MC exceeds the MR, which would reduce profit.

Answer the Question on the Basis of the Following Data