Question

Suppose that you manage a firm in a perfectly competitive market that has the following costs of production:

Quantity	Total Cost
0	$5
1	$8
2	$10
3	$13
4	$18
5	$24
6	$32
7	$42
8	$53
9	$66
10	$81

If the market price is $6, how many units should you produce to maximize profit?

Answer 1

Quantity	Total cost	Marginal Cost
0	5	----
1	8	3
2	10	2
3	13	3
4	18	5
5	24	6
6	32	8
7	42	10
8	53	11
9	66	13
10	81	15

Marginal cost = Change in total cost / Change in quantity.

A perfectly competitive firm maximize profit at Price (P) =Marginal Cost ( MC)

P=MC = 6 corresponding to 5 units of output.

Thus, firm should produce 5 units of output.