Question

Table 14-9
Suppose that a firm in a competitive market faces the following revenues and costs:

Quantity	Total Revenue	Total Cost
0	$0	$10
1	$9	$14
2	$18	$19
3	$27	$25
4	$36	$32
5	$45	$40
6	$54	$49
7	$63	$59
8	$72	$70
9	$81	$82

Refer to Table 14-9. If the firm produces 4 units of output,

	a)marginal revenue is less than marginal cost.
	b)marginal cost is $4.
	c)the firm is maximizing profit.
	d)total revenue is greater than variable cost.

Answer 1

The profits of a perfectly competitive firm is maximised when P = MC.

P = AR = TR/Q, Profit = TR - TC, MC = dTC/dQ, MR = dTR/dQ

Using the above formula we get the following table.

Quantity	Total Revenue	Total Cost	Marginal Revenue	Marginal Cost	Average Revenue
0	0	10
1	9	14	9	4	9
2	18	19	9	5	9
3	27	25	9	6	9
4	36	32	9	7	9
5	45	40	9	8	9
6	54	49	9	9	9
7	63	59	9	10	9
8	72	70	9	11	9
9	81	82	9	12	9

Here P = AR + MC at Q = 6. So option c) is incorrect.

At Q = 4, MR > MC, so option a) incorrect.

At Q = 4, MC = 7. so option b) incorrect.

Therefore, d) is the correct option.