Tammy sells woollen hats in a perfectly competitive market. The marginal cost of producing one hat is $24. The marginal cost of producing a second hat is $26 and the marginal cost of producing a third hat is $28. The market price of a hat is $26. To maximise profit, Tammy produces _______ per day.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, Tammy should produce hats until the marginal cost equals the market price. The marginal cost of the second hat is $26, which equals the market price, so she should produce 2 hats to maximize profit.

Tammy Sells Woollen Hats in a Perfectly Competitive Market