(Table: Employees and Artisanal Carpets) Use Table: Employees and Artisanal Carpets. Suppose that you achieve your dream of opening an artisanal studio specializing in the production of hand-woven carpets. You pay $10 in fixed costs for equipment and $9 per day to each of your artists (employees) who make the carpets. If the industry is perfectly competitive, and the current market price is $1, how many carpets should you produce? $$\text { Table: Employees and Artisanal Carpets } \
\begin{array} { | l | l | }
\hline \begin{array} { l }
\text { Number of } \
\text { Employees (artists) }
\end{array} & \text { Output (carpets) } \
\hline 1 & 10 \
\hline 2 & 25 \
\hline 3 & 35 \
\hline 4 & 43 \
\hline 5 & 48 \
\hline
\end{array}$$

Question

(Table: Employees and Artisanal Carpets) Use Table: Employees and Artisanal Carpets. Suppose that you achieve your dream of opening an artisanal studio specializing in the production of hand-woven carpets. You pay $10 in fixed costs for equipment and $9 per day to each of your artists (employees) who make the carpets. If the industry is perfectly competitive, and the current market price is $1, how many carpets should you produce? $$\text { Table: Employees and Artisanal Carpets } \
\begin{array} { | l | l | } 
\hline \begin{array} { l } 
\text { Number of } \
\text { Employees (artists) }
\end{array} & \text { Output (carpets) } \
\hline 1 & 10 \
\hline 2 & 25 \
\hline 3 & 35 \
\hline 4 & 43 \
\hline 5 & 48 \
\hline
\end{array}$$

Quizplus · Accepted Answer

To maximize profit in a perfectly competitive market, you should produce where marginal cost (MC) equals market price. The fixed cost is $10, and each artist costs $9 per day. The cost to produce the first 10 carpets is $19 ($10 fixed + $9 for one artist), making the average cost per carpet $1.90, which is above the market price. However, we're looking for the point where the cost of producing one more carpet equals the market price of $1. The change in total cost when going from 25 to 35 carpets is $9 (the cost of adding one more artist), and the increase in output is 10 carpets, making the marginal cost $0.90 per carpet, which is below the market price. Producing beyond 35 carpets increases the marginal cost above $1, making 35 carpets the optimal production level.