Table 7-2
Arnie sells basketballs in a perfectly competitive market. Table 7-2 summarises Arnie's output per day (Q), total cost (TC), average total cost (ATC) and marginal cost (MC).
-Refer to Table 7-2.What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?
A) Q = 1; profit = -$10.
B) Q = 3; profit = -$7.50
C) Q = 0; profit = -$10.00
D) Price and profit cannot be determined from the information given.

Question

Table 7-2
  Arnie sells basketballs in a perfectly competitive market. Table 7-2 summarises Arnie's output per day (Q), total cost (TC), average total cost (ATC) and marginal cost (MC).
-Refer to Table 7-2.What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?
A) Q = 1; profit = -$10. 
B) Q = 3; profit = -$7.50 
C) Q = 0; profit = -$10.00 
D) Price and profit cannot be determined from the information given.

Quizplus · Accepted Answer

At a market price of $5.00, Arnie will produce where MC = MR (price), which occurs at a quantity of 3. At this output level, his total cost is $22.50 and his average total cost is $7.50. Therefore, his revenue is $15 (from selling 3 basketballs at $5 each) and his profit is -$7.50 (total revenue of $15 minus total cost of $22.50). Option B is the only choice that matches this output and profit level.

Table 7-2 Arnie Sells Basketballs in a Perfectly Competitive Market