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 will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?

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 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 Arnie's profit, we first need to calculate his total revenue (TR). Since he sells his output in a perfectly competitive market, AR (average revenue) = Price = $5.00. Therefore, 
TR = AR x Q 
TR = $5.00 x Q

Now, we can calculate his profit using the formula: 
Profit = TR - TC

When Q = 1, 
TR = $5.00 x 1 = $5.00 
TC = $10.00 
Profit = $5.00 - $10.00 = -$5.00

When Q = 2, 
TR = $5.00 x 2 = $10.00 
TC = $15.00 
Profit = $10.00 - $15.00 = -$5.00

When Q = 3, 
TR = $5.00 x 3 = $15.00 
TC = $22.50 
Profit = $15.00 - $22.50 = -$7.50

When Q = 4, 
TR = $5.00 x 4 = $20.00 
TC = $32.00 
Profit = $20.00 - $32.00 = -$12.00

Therefore, the best choice is (B) Q = 3; profit = -$7.50.

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