The table below shows the costs of a firm that produces handmade pottery vases in a...

The table below shows the costs of a firm that produces handmade pottery vases in a competitive industry.

Output	AVC	MC
1	3	3
2	2.50	2
3	2.17	1.5
4	1.93	1.2
5	1.74	1
6	1.67	1.3
7	1.71	2
8	2	4
9	2.44	6
10	3	8

The market price for a handmade vase is $4.50. To maximize its profit, this firm should produce vases.

Solutions

Expert Solution

If there is no output at which price equals the marginal cost in explicit manner then it produce up to that level of output at which price exceeds

the marginal cost. The market price is $4.50 per vase. The given table shows that the market price exceeds the marginal cost up to production of 8 vases.

So,To maximize its profit, this firm should produce 8 vases.

Rahul Sunny answered 2 years ago

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