The table given below shows the price charged by a firm and the marginal cost incurred by it for the different levels of the output. Table 10.2
Assume that the firm described in Table 10.2 is incurring a total cost of $25 at the profit-maximizing output level.The firm will:

Question

The table given below shows the price charged by a firm and the marginal cost incurred by it for the different levels of the output. Table 10.2
 Assume that the firm described in Table 10.2 is incurring a total cost of $25 at the profit-maximizing output level.The firm will:

Quizplus · Accepted Answer

To find the profit-maximizing output level, we need to look at where marginal cost intersects with marginal revenue. In this case, we do not have information about the firm's marginal revenue, so we can assume that price is equal to marginal revenue.

At an output level of 6 units, marginal cost is equal to the price of $5, which means this is the profit-maximizing output level. At 6 units of output, total revenue is $30 (6 units x $5 = $30) and total cost is $25, leaving a profit of $5.

Therefore, the firm will earn a profit of $5 at the profit-maximizing output level, not enough to cover its fixed costs in the long run, but enough to cover its variable costs in the short run. The correct answer then is D: earn a profit of $30.

The Table Given Below Shows the Price Charged by a Firm