Refer to the data provided in Table 16.1 below to answer the following questions.
Table 16.1 $$\begin{array} { c l l }
\text { Tons of Salt } & \text { MC } & \text { MSC } \
\hline 1 & 10 & 20 \
2 & 20 & 30 \
3 & 30 & 40 \
4 & 40 & 50 \
5 & 50 & 60
\end{array}$$
-Refer to Table 16.1. This salt processing firm is perfectly competitive and is forced to take damage costs into account. If the market price of the product is $30 a ton and the firm behaves as a profit-maximizer, how much total damage will result?

Question

Refer to the data provided in Table 16.1 below to answer the following questions.
Table 16.1 $$\begin{array} { c l l } 
\text { Tons of Salt } & \text { MC } & \text { MSC } \
\hline 1 & 10 & 20 \
2 & 20 & 30 \
3 & 30 & 40 \
4 & 40 & 50 \
5 & 50 & 60
\end{array}$$
-Refer to Table 16.1. This salt processing firm is perfectly competitive and is forced to take damage costs into account. If the market price of the product is $30 a ton and the firm behaves as a profit-maximizer, how much total damage will result?

Quizplus · Accepted Answer

Since the firm is perfectly competitive, it cannot influence the market price, which is $30 a ton. However, it must take into account the damage costs that result from its production. From Table 16.1, we can see that the marginal cost of the last ton produced is $20, which is less than the market price. Therefore, the firm will continue producing until the point where marginal cost equals marginal revenue, which is at a production level of 6 tons. At this level, total revenue is 6 x $30 = $180. However, the total cost of production is 6 x $20 = $120, and there is an additional $20 in damage costs. Therefore, the total economic profit is $180 - $120 - $20 = $40, and the total damage costs are $20.

Refer to the Data Provided in Table 16 -Refer to Table 16