A firm in a competitive market has the following cost structure:

If the market price is $8,how many units should the firm produce to maximize profit?

Question

A firm in a competitive market has the following cost structure:

If the market price is $8,how many units should the firm produce to maximize profit?

Quizplus · Accepted Answer

To maximize profit, the firm should produce at the quantity where marginal cost equals marginal revenue. In this case, the marginal cost is constant at $3 across all quantities, and the marginal revenue equals the market price of $8. Setting $3 equal to $8 - 2Q, where Q is the quantity produced, we get Q = 2.5. Since the firm can only produce whole units, it should produce 6 units to maximize profit. At this quantity, the firm's total revenue is $48 and total cost is $38, resulting in a profit of $10.

A Firm in a Competitive Market Has the Following Cost