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 the quantity where marginal cost (MC) equals marginal revenue (MR), which is also the market price in a competitive market.

To find the marginal cost, we can calculate the change in total cost for each additional unit of output. From the table, we can see that the total cost increases by $3 for each additional unit of output (i.e. the fixed cost). Therefore, the marginal cost is a constant $3 for all levels of output.

To find the marginal revenue, we can calculate the change in total revenue for each additional unit of output. Since the market price is $10, the revenue for each additional unit of output is also $10. Therefore, the marginal revenue is also a constant $10 for all levels of output.

Setting MC = MR, we get:

$3 = $10 
q = 3

Thus, the firm should produce 3 units of output to maximize its profit. At this level of output, the total cost is $27 (3 x $9), the total revenue is $30 (3 x $10), and the profit is $3.

The Following Table Gives the Average Total Cost of Production