Suppose that a firm in a competitive market faces the following revenues and costs:

Quantity	Total Revenue	Total Cost
0	$0	$3
1	$7	$5
2	$14	$8
3	$21	$12
4	$28	$17
5	$35	$23
6	$42	$30
7	$49	$38

A. A competitive firm won’t produce beyond what quantity? Why?

B. What is the marginal cost of the 5^th unit?

C. How much should the competitive firm produce to maximize profit?

D. What is the profit at the maximizing quantity?

Solutions

Expert Solution

MR = Change in TR / Change in Q

MC = Change in TC / Change in Q

Q	TR	TC	MR	MC
0	0	3
1	7	5	7	2
2	14	8	7	3
3	21	12	7	4
4	28	17	7	5
5	35	23	7	6
6	42	30	7	7
7	49	38	7	8

a. Firm will produce not more than 6 units. Because at this level of output MR = MC and profit will be maximumm

b. MC of 5th unit = 6

c. Firm should produce 6 units to maximize profit

d. Profit = TR - TC = 42 - 30 = 12

Rahul Sunny answered 1 year ago

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