The following table gives the average total cost of production for various levels of output for a competitive firm:
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 its profit?

Question

The following table gives the average total cost of production for various levels of output for a competitive firm: 
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 its profit?

Quizplus · Accepted Answer

To maximize profit, the firm should produce at the level of output where marginal cost equals market price. From the table, we can see that the total cost for producing three units of output is $13. Adding the fixed cost of $3, the total cost becomes $16. At this output level, the marginal cost is $10, which is equal to the market price. Therefore, the firm should produce 3 units to maximize its profit. Producing any additional units will result in a higher total cost than revenue, leading to a decrease in profit.

The Following Table Gives the Average Total Cost of Production