The schedule of total cost for a firm in a price-taker market is given in the table. If the market price for this product is $50, which of the following output levels should this firm produce if it wants to maximize its profit?

A) 1
B) 2
C) 3
D) 4

Question

The schedule of total cost for a firm in a price-taker market is given in the table. If the market price for this product is $50, which of the following output levels should this firm produce if it wants to maximize its profit?

A) 1 
B) 2 
C) 3 
D) 4

Quizplus · Accepted Answer

To maximize profit, the firm should produce where marginal cost equals marginal revenue. In a price-taker market, the price is constant at $50, which is also the marginal revenue. 
At an output of 3 units, the marginal cost is equal to $50, so this is the profit-maximizing level of output. At any other level of output, the marginal cost is either greater than or less than $50, resulting in lower profit. Therefore, the firm should produce 3 units to maximize its profit.

The Schedule of Total Cost for a Firm in a Price-Taker