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 $45,the firm will:
A) shut down.
B) produce 4 units and realize a $120 economic profit.
C) produce 5 units and realize a $15 economic profit.
D) produce 6 units and realize a $100 economic profit.

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 $45,the firm will:
A) shut down.
B) produce 4 units and realize a $120 economic profit.
C) produce 5 units and realize a $15 economic profit.
D) produce 6 units and realize a $100 economic profit.

Quizplus · Accepted Answer

To determine the profit-maximizing level of output, the firm should find the output level at which marginal cost equals marginal revenue. In perfect competition, the marginal revenue is equal to the product price. At the product price of $45, the MC equals MR at the output level of 5 units. At this point, the firm's TC is $210, and the total revenue is $225. Therefore, the firm's economic profit is $15. Any level of output other than 5 units would result in a lower profit, or even a loss.

Answer the Question on the Basis of the Following Cost