Use the following table to answer the next question. The table shows the total costs associated with varying levels of output produced by a perfectly competitive firm. Output Total Cost0 $1,4001 1,6002 2,0003 2,6004 3,5005 4,800 If the product sells for $800 a unit, the firm's profit-maximizing output isMultiple Choice2.3.4.
Question
Use the following table to answer the next question. The table shows the total costs associated with varying levels of output produced by a perfectly competitive firm. Output Total Cost0 800 a unit, the firm's profit-maximizing output isMultiple Choice2.3.4.
Solution
To find the profit-maximizing output, we need to calculate the marginal cost (MC) and marginal revenue (MR) for each level of output and then compare them.
The marginal cost is the change in total cost when output increases by one unit. The marginal revenue is the change in total revenue when output increases by one unit. In a perfectly competitive market, the price of the product is equal to the marginal revenue.
Given that the product sells for 800.
Now, let's calculate the MC:
- For the first unit of output, MC = (1,600 - 1,400) = $200.
- For the second unit of output, MC = (2,000 - 1,600) = $400.
- For the third unit of output, MC = (2,600 - 2,000) = $600.
- For the fourth unit of output, MC = (3,500 - 2,600) = $900.
- For the fifth unit of output, MC = (4,800 - 3,500) = $1,300.
The firm should produce up to the point where MC = MR. Looking at the MCs calculated, the firm should produce 3 units of output because at the fourth unit, the MC (800).
So, the firm's profit-maximizing output is 3.
Similar Questions
The following table shows cost data for a perfectly competitive firm. Output Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost1 $500 $120 $620 $1202 250 108 358 953 167 97 263 754 125 88 213 605 100 81 181 556 83 78 161 607 71 78 149 808 63 81 144 1059 56 87 143 13510 50 96 146 170 If the product price is $105, the profit-maximizing output isMultiple Choice0 units.5 units.8 units.9 units.
When a firm produces 50 000 units of output, its total cost equals $6.5 million. When it increases its production to 70 000 units of output, its total cost increases to $9.4 million. Within this range, the marginal cost of an additional unit of output is ________.
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Table 7.1QuantityTotal Cost(dollars)Variable Cost(dollars) 0$1000 $0100 1360 360200 1560 560300 1960 960400 27601760500 40003000600 58004800 Table 7.1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units.Refer to Table 7.1. Suppose the fixed cost of production rises by $500 and the price per unit is still $8. What happens to the firm’s profit-maximising output level?Group of answer choicesIt must fall.It must rise to offset the increased cost.It will remain the same.The firm will shut down.
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