Table 12-3

Arnie sells basketballs in a perfectly competitive market. Table 12-3 summarizes Arnie's output per day (Q), total cost (TC), average total cost (ATC)and marginal cost (MC).
-Refer to Table 12-3.What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?

Question

Table 12-3
  
Arnie sells basketballs in a perfectly competitive market. Table 12-3 summarizes Arnie's output per day (Q), total cost (TC), average total cost (ATC)and marginal cost (MC).
-Refer to Table 12-3.What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?

Quizplus · Accepted Answer

At a market price of $5, Arnie will produce the output level where MC = P. This occurs at a quantity of 3 units (where MC = $5). At this output level, Arnie's total cost is $22, so his ATC is $7.33 ($22/3). Arnie's revenue at this output level is $15 (3 units x $5 per unit). Arnie's profit is revenue minus total cost, which is -$7. This means that he is making a loss of $7.50 per day. Therefore, the correct answer is B.

Table 12-3 Arnie Sells Basketballs in a Perfectly Competitive Market. Table 12-3