Table 8.3 Arnie sells basketballs in a perfectly competitive market.Table 8.3 summarises Arnie's output per day (Q), total cost (TC), average total cost (ATC)and marginal cost (MC).
-Refer to Table 8.3.What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?

Question

Table 8.3  Arnie sells basketballs in a perfectly competitive market.Table 8.3 summarises Arnie's output per day (Q), total cost (TC), average total cost (ATC)and marginal cost (MC).
-Refer to Table 8.3.What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?

Quizplus · Accepted Answer

To determine the output level that maximises profit, Arnie will produce at the level where marginal cost is equal to market price. From the table, we can see that the marginal cost is equal to $5 at an output level of Q = 3. At this output level, the total cost is $22.50, giving an average total cost of $7.50 per basketball. Since the market price is also $5, Arnie will earn a loss of $2.50 for each basketball sold, resulting in a total profit of -$7.50. Therefore, the answer is B.

Table 83 Arnie Sells Basketballs in a Perfectly Competitive Market