The following graph shows the demand and cost curves of an imperfectly competitive firm.MC and ATC represent the marginal cost curve and the average cost curve respectively. Figure 22.1 In Table 22.1, in order to maximize profits, the firm should increase output until the ____ unit of output.
A)fifth
B)sixth
C)seventh
D)eighth
E)ninth

Question

The following graph shows the demand and cost curves of an imperfectly competitive firm.MC and ATC represent the marginal cost curve and the average cost curve respectively. Figure 22.1  In Table 22.1, in order to maximize profits, the firm should increase output until the ____ unit of output.
A)fifth 
B)sixth 
C)seventh 
D)eighth 
E)ninth

Quizplus · Accepted Answer

The firm should produce where MR=MC, which is at the quantity of output where the marginal cost curve intersects the marginal revenue curve. In this case, the intersection happens at the eighth unit of output, which is where the firm can maximize its profits. At any lower level of output, the firm can increase its profits by producing more, but at any higher level of output, the marginal cost will exceed the marginal revenue, resulting in a loss. Therefore, the best choice is to produce at the eighth unit of output.

The Following Graph Shows the Demand and Cost Curves of an Imperfectly