) The profitmaximizing output for the firm in Exhibit 103 is
A)0 units
B)1 unit
C)3 units
D)5 units
E)impossible to determine because MC and MR are not known

Question

)  The profit­maximizing output for the firm in Exhibit 10­3 is
A)0 units 
B)1 unit 
C)3 units 
D)5 units 
E)impossible to determine because MC and MR are not known

Quizplus · Accepted Answer

The profit-maximizing output for a firm is where MR=MC. In Exhibit 10-3, the MR is $40 for each unit sold. To determine the MC, we need to calculate the change in total cost when one additional unit is produced. From the table, we can see that the total cost of producing 2 units is $110 and the total cost of producing 3 units is $120. Therefore, the MC of producing the third unit is $10.

Since MR=$40 and MC=$10, the profit-maximizing output is where MR=MC, which is at 3 units. If the firm produces less than 3 units, they can increase profit by producing more. If the firm produces more than 3 units, they will have higher MC than MR, which will decrease profit. Therefore, C) 3 units is the best choice.

) the Profit­maximizing Output for the Firm in Exhibit

) the Profitmaximizing Output for the Firm in Exhibit