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

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 profit?

Question

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

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 profit?

Quizplus · Accepted Answer

To maximize profit, the firm should produce where marginal cost equals marginal revenue. In this case, the marginal cost is constant at $5 per unit. The market price is $10, so the marginal revenue for each additional unit produced is also $10. Therefore, the firm should produce until the third unit, where the marginal cost is equal to the marginal revenue ($5 = $10). Producing more than three units would result in increasing costs without increasing revenue, leading to lower profits. So, the best choice is to produce 3 units to maximize profit.

A Firm in a Competitive Market Has the Following Cost