A firm in a competitive market has the following cost structure:
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

A firm in a competitive market has the following cost structure: 
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 where marginal cost (MC) equals marginal revenue (MR).

In this case, the marginal cost can be found by taking the derivative of the total cost equation:

MC = 2Q + 1

The marginal revenue for a firm in a competitive market is equal to the market price, which is given as $10.

Setting MC equal to MR:

2Q + 1 = 10

Solving for Q:

Q = 4.5

Since the firm cannot produce half a unit, it should produce 3 units to maximize profit.

A Firm in a Competitive Market Has the Following Cost