A firm is currently producing 100 hair dryers and sells them in a perfectly competitive market at a price of $10 each.The marginal cost of producing the 100^th hair dryer is $9 and the marginal cost of producing the 101^st hair dryer is $10.To maximize profit,the firm should produce:

Question

Quizplus · Accepted Answer

To maximize profit, the firm should produce at the point where marginal cost equals marginal revenue. In perfect competition, the price is equal to marginal revenue. 
Given that the price for each hair dryer is $10, the marginal revenue of the firm will also be $10.
When the firm produces 100 hair dryers, the marginal cost is $9 and the marginal revenue is $10. Therefore, it can earn additional profit by producing one more hair dryer because the marginal revenue exceeds the marginal cost. 
However, when the firm produces the 101st hair dryer, the marginal cost becomes $10 which becomes equal to the marginal revenue. Producing any more hair dryers after this point will result in a loss because the marginal cost will be higher than the marginal revenue.
Hence, the optimal production level for the firm to maximize profit is 101 hair dryers.

A Firm Is Currently Producing 100 Hair Dryers and Sells