Question

Quantity (units)	Total cost (dollars)
0	3
1	6
2	12
3	21
4	33
5	49

The above table gives the quantity of output and the total cost for a perfectly competitive firm that can sell all of its output at $9 per unit

a) Find the profit maximizing level of output for this firm.

(Show your work and explain). (3 points) (world limit: 100)

b) How much economic profit is the firm making?(Show your work and explain) (3 points) (world limit: 100)

Answer 1

a.) For profit-maximizing level of output, we need to equate Marginal revenue to Marginal cost. Since perfectly competitive firm can sell all its output $9 per unit, it means it's average revenue and marginal revenue both are same which is horizontal to output at $9 .

Output	Marginal Cost
0	--
1	3
2	6
3	9
4	12
5	16

Note= formula used , Marginal Cost(n) = Total Cost(n) - Total Cost(n-1)

Therefore, profit-maximizing level output is 3 units.

b.) Economic profit = total revenue - total cost

= Quantity×Price - total cost

= 3×9 - 21

= 27 - 21

= $6