Table 12-2
Arnie sells basketballs in a perfectly competitive market.Table 12-2 summarizes Arnie's output per day (Q),total cost (TC),average total cost (ATC)and marginal cost (MC).
-Refer to Table 12-2.What price (P)will Arnie charge and how much profit will he earn if the market price of basketballs is $12.50?

Question

Table 12-2
  Arnie sells basketballs in a perfectly competitive market.Table 12-2 summarizes Arnie's output per day (Q),total cost (TC),average total cost (ATC)and marginal cost (MC).
-Refer to Table 12-2.What price (P)will Arnie charge and how much profit will he earn if the market price of basketballs is $12.50?

Quizplus · Accepted Answer

In a perfectly competitive market, firms are price-takers and will charge the market price. Thus, Arnie will charge $12.50 for each basketball. To calculate his profit, we need to find his total revenue (TR) and total cost (TC) at this output level.

From the table, we can see that at Q = 50, Arnie's TC is $300 and his MC is $5. Since his ATC at that output level is $6, we can calculate his total variable cost (TVC) as: 
TVC = ATC x Q = $6 x 50 = $300

Therefore, his total cost (TC) equals his TVC since he has no fixed costs. His total revenue (TR) at a price of $12.50 and output of 50 is: 
TR = P x Q = $12.50 x 50 = $625

Arnie's profit can be calculated as: 
Profit = TR - TC = $625 - $300 = $325

Thus, Arnie will charge $12.50 for each basketball and earn a profit of $325. The correct answer is (C).

Table 12-2 Arnie Sells Basketballs in a Perfectly Competitive Market.Table