The following table gives the average total cost of production for various levels of output for a competitive price-taker 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 price-taker 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 quantity where marginal cost (MC) equals market price (P). From the given table, we can calculate the MC values for each quantity as follows:
MC(1) = (12-10) = $2
MC(2) = (16-12) = $4
MC(3) = (18-16) = $2
MC(4) = (24-20) = $4

At a market price of $10, the firm should produce at a quantity where MC = $10. This occurs at a quantity of 3, where MC = $2. Therefore, the firm should produce 3 units to maximize profit.

The Following Table Gives the Average Total Cost of Production