Suppose that a perfectly competitive firm's AVC curve is given by AVC = WQ, and its marginal cost curve is given by MC = 2WQ, where W is the wage rate. Assume W = 10. At a market price of $3,200, the firm will produce a quantity of ____ to maximize profit.

Question

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To maximize profit, a perfectly competitive firm produces where P = MC. Given MC = 2WQ and P = $3,200, we set 3,200 = 2(10)Q, solving for Q gives Q = 160.

Suppose That a Perfectly Competitive Firm's AVC Curve Is Given