Table 7.3
$$\begin{array} { | c | r | r | c | }
\hline \text { Quantity } & \text { Total Cost } & \text { Total Cost } & \text { Marginal } \
\hline 0 & \$ 10.00 & - - - - & - - - - \
\hline 1 & 15.00 & \$ 15.00 & \$ 5.00 \
\hline 2 & 17.50 & 8.75 & 2.50 \
\hline 3 & 22.50 & 7.50 & 5.00 \
\hline 4 & 30.00 & 7.50 & 7.50 \
\hline 5 & 40.00 & 8.00 & 10.00 \
\hline 6 & 52.50 & 8.75 & 12.50 \
\hline 7 & 67.50 & 9.64 & 15.00 \
\hline 8 & 85.00 & 10.63 & 17.50 \
\hline 9 & 105.00 & 11.67 & 20.00 \
\hline
\end{array}$$ Arnie sells basketballs in a perfectly competitive market. Table 7.3 summarises Arnie's output per day (Q), total cost (TC), average total cost (ATC), and marginal cost (MC).
-Refer to Table 7.3.What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?

Question

Table 7.3
 $$\begin{array} { | c | r | r | c | } 
\hline \text { Quantity } & \text { Total Cost } & \text { Total Cost } & \text { Marginal } \
\hline 0 & \$ 10.00 & - - - - & - - - - \
\hline 1 & 15.00 & \$ 15.00 & \$ 5.00 \
\hline 2 & 17.50 & 8.75 & 2.50 \
\hline 3 & 22.50 & 7.50 & 5.00 \
\hline 4 & 30.00 & 7.50 & 7.50 \
\hline 5 & 40.00 & 8.00 & 10.00 \
\hline 6 & 52.50 & 8.75 & 12.50 \
\hline 7 & 67.50 & 9.64 & 15.00 \
\hline 8 & 85.00 & 10.63 & 17.50 \
\hline 9 & 105.00 & 11.67 & 20.00 \
\hline
\end{array}$$ Arnie sells basketballs in a perfectly competitive market. Table 7.3 summarises Arnie's output per day (Q), total cost (TC), average total cost (ATC), and marginal cost (MC).
-Refer to Table 7.3.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 maximize profit in a perfectly competitive market, the firm should produce at the point where marginal revenue (which is equal to the market price in a perfectly competitive market) equals marginal cost (MC). In this case, when the market price is $5.00, Arnie's marginal cost is $2.50 at Q=3. At Q=2, MC is $4.00, and at Q=4, MC is $5.50. Therefore, the profit-maximizing output will be Q=3, with a total cost of $22.50, and an average total cost (ATC) of $7.50. At Q=3, revenue will be $15.00 ($5 x 3), so Arnie's profit will be $15.00 - $22.50 = -$7.50.

Table 73 Arnie Sells Basketballs in a Perfectly Competitive Market