Answer the question on the basis of the following cost data for a purely competitive seller: $$\begin{array} { c c c }
\text { Output } & & \text { Total Cost } \
\hline
0 & & \$ 50 \
1 & & 90 \
2 & & 120 \
3 & & 140 \
4 & & 170 \
5 & & 210 \
6 & & 260 \
7 & & 330
\end{array}$$ Refer to the data.If product price is $60,the firm will:
A) shut down.
B) produce 4 units and realize a $120 economic profit.
C) produce 6 units and realize a $100 economic profit.
D) produce 3 units and incur a $40 loss.

Question

Answer the question on the basis of the following cost data for a purely competitive seller: $$\begin{array} { c c c } 
\text { Output } & & \text { Total Cost } \
\hline
0 & & \$ 50 \
1 & & 90 \
2 & & 120 \
3 & & 140 \
4 & & 170 \
5 & & 210 \
6 & & 260 \
7 & & 330
\end{array}$$ Refer to the data.If product price is $60,the firm will:
A) shut down.
B) produce 4 units and realize a $120 economic profit.
C) produce 6 units and realize a $100 economic profit.
D) produce 3 units and incur a $40 loss.

Quizplus · Accepted Answer

To determine the profit-maximizing level of output, we need to compare the price with the marginal cost (MC) of each unit. Marginal cost is calculated as the change in total cost (TC) with each additional unit of output. 
$$\begin{array} { c c c c } 
\text { Output } & & \text { Total Cost } & & \text { Marginal Cost } \
\hline
0 & & \$ 50 & & - \
1 & & 90 & & \$ 40 \
2 & & 120 & & \$ 30\
3 & & 140 & & \$ 20 \
4 & & 170 & & \$ 30 \
5 & & 210 & & \$ 40\
6 & & 260 & & \$ 50\
7 & & 330 & & \$ 70\
\end{array}$$
At a price of $60, the firm should produce at the level where MC = price. This occurs at an output of 6 units, where MC=$50 and the profit per unit is $10. Producing any higher quantity would lead to a decrease in economic profit, while producing any lower quantity would lead to a negative economic profit. Thus, the firm should produce 6 units and realize a $100 economic profit.

Answer the Question on the Basis of the Following Cost