The following table applies to a purely competitive industry composed of 100 identical firms. $\begin{array}{lcl}
Quantity&&Quantity\
Demanded &Price &Supplied\
\hline
400,000 & \$ 5 & 800,000 \
500,000 & 4 & 700,000 \
600,000 & 3 & 600,000 \
700,000 & 2 & 500,000 \
800,000 & 1 & 400,000
\end{array}$ Refer to the table.If each of the 100 firms in the industry is maximizing its profit,each must have a marginal cost of:
A) $5.
B) $4.
C) $3.
D) $2.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, each firm produces at the point where its marginal cost equals its marginal revenue. In this case, the market price is determined by the intersection of the demand and supply curves at a price of $3 and a quantity of 600,000. Each firm, being identical, will have the same cost structure and will produce the same quantity to maximize its profit, which is at the point where marginal cost equals the market price of $3. Therefore, each firm must have a marginal cost of $3.

The Following Table Applies to a Purely Competitive Industry Composed