Table 14-8
A firm in a competitive market has the following cost structure.

$$\begin{array} { | c | c | }
\hline \begin{array} { c }
\text { Quantity } \
\text { (Units) }
\end{array} & \begin{array} { c }
\text { Average Total Cost } \
\text { (Dollars) }
\end{array} \
\hline 0 & - - \
\hline 1 & 10 \
\hline 2 & 8 \
\hline 3 & 7 \
\hline 4 & 8 \
\hline 5 & 10 \
\hline
\end{array}$$
-Refer to Table 14-8. 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?

Question

Table 14-8
A firm in a competitive market has the following cost structure.
​
​
 $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Quantity } \
\text { (Units) }
\end{array} & \begin{array} { c } 
\text { Average Total Cost } \
\text { (Dollars) }
\end{array} \
\hline 0 & - - \
\hline 1 & 10 \
\hline 2 & 8 \
\hline 3 & 7 \
\hline 4 & 8 \
\hline 5 & 10 \
\hline
\end{array}$$
-Refer to Table 14-8. 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?

Quizplus · Accepted Answer

To maximize profit, the firm should produce at a level where the price equals or exceeds the average total cost (ATC) but does not produce more when the ATC starts to increase again. Here, at 3 units, the ATC is $7, which is less than the market price of $10, and producing more would increase the ATC. Therefore, producing 3 units maximizes profit.

Table 14-8 a Firm in a Competitive Market Has the Following

Table 14-8
a Firm in a Competitive Market Has the Following