The following figure shows the marginal cost curve and the average total cost curve of a firm operating in a perfectly competitive market.

-Refer to the figure above.Suppose the price in this market is $5.At what level of output does the firm maximize its profits?
A) 0 units
B) 1,000 units
C) 300 units
D) 700 units

Question

The following figure shows the marginal cost curve and the average total cost curve of a firm operating in a perfectly competitive market.
 
-Refer to the figure above.Suppose the price in this market is $5.At what level of output does the firm maximize its profits?
A) 0 units 
B) 1,000 units 
C) 300 units 
D) 700 units

Quizplus · Accepted Answer

The firm maximizes its profits where marginal cost equals marginal revenue. If the price is $5, the firm should produce where the marginal cost curve intersects the price line at $5, which is at 700 units.

The Following Figure Shows the Marginal Cost Curve and the Average