The schedule of total cost for a firm in a price-taker market is given in the table. If the market price for this product is $50, which of the following output levels should this firm produce if it wants to maximize its profit?

Question

Quizplus · Accepted Answer

To maximize profit, a firm in a price-taker market should produce where marginal cost equals price. The marginal cost is obtained by calculating the difference between Total Cost of that output and Total Cost of the previous output level. Therefore, the marginal cost of producing 3 units is 120-100 = 20, which is equal to the market price of $50. Producing any more or less than 3 units would mean that the marginal cost is either higher or lower than the price, thus reducing the firm's profit. Therefore, the firm should produce 3 units to maximize its profit.

The Schedule of Total Cost for a Firm in a Price-Taker