Table 10.1
$\begin{array}{|c|c|c|}
\hline \text { Quantity } & \begin{array}{c}
\text { Total Cost } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Variable Cost } \
\text { (dollars) }
\end{array} \
\hline 0 & \$ 1,000 & \$ 0 \
\hline 100 & 1,360 & 360 \
\hline 200 & 1,560 & 560 \
\hline 300 & 1,960 & 960 \
\hline 400 & 2,760 & 1,760 \
\hline 500 & 4,000 & 3,000 \
\hline 600 & 5,800 & 4,800 \
\hline
\end{array}$
Table 10.1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units.
-Refer to Table 10.1.If the market price of each camera case is $8, what is the profit-maximizing quantity?

Question

Table 10.1
 $\begin{array}{|c|c|c|}
\hline \text { Quantity } & \begin{array}{c}
\text { Total Cost } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Variable Cost } \
\text { (dollars) }
\end{array} \
\hline 0 & \$ 1,000 & \$ 0 \
\hline 100 & 1,360 & 360 \
\hline 200 & 1,560 & 560 \
\hline 300 & 1,960 & 960 \
\hline 400 & 2,760 & 1,760 \
\hline 500 & 4,000 & 3,000 \
\hline 600 & 5,800 & 4,800 \
\hline
\end{array}$ 
Table 10.1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units.
-Refer to Table 10.1.If the market price of each camera case is $8, what is the profit-maximizing quantity?

Quizplus · Accepted Answer

To find the profit-maximizing quantity, we can use the rule MC=MR. From the table, we know that the marginal cost of producing 100 units is $360, and for 200 units, it is $200 more, or $560. Within the available levels of output, only 300 units and 400 units have a marginal cost lower than the market price of $8. However, producing 300 units would lead to a total cost of $1,960, and producing 400 units would lead to a total cost of $2,760. Given a choice between two production levels that both yield positive profits, the firm will choose the level that generates the highest profit. The incremental revenue from producing 400 units instead of 300 units is $400 x $8 = $3,200. The incremental cost, however, is $2,760 - $1,960 = $800. Therefore, the incremental profit is $2,400, which is larger than the incremental profit of producing 500 units instead of 400 units. Therefore, the profit-maximizing quantity is 400 units.

Table 101 Table 101 Shows the Short-Run Cost Data of a Perfectly Competitive