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Chapter 8: Q.4 (page 211)

Suppose that the market price increases to $6, as Table 8.14 shows. What would happen to the profit-maximizing output level?

Short Answer

Expert verified

The profit maximizing output level becomes 90units.

Step by step solution

01

Given information

In a perfect competition, following information is provided

The profit maximization price and quantity are at that point where MC=MR, and MC cuts MR.In other words, MC should be rising when it equates to MR.

02

Explanation

As we know, in order to maximize the profit the firm will produce that level of output where MR=MC. We can see from the table that MR=MC at Q=90, therefore, this firm will produce the 90units of output. Also, profit is the difference between TR and TC, at Q=90, TR=540, and TC=324, so the profit isrole="math" localid="1646821019343" $540-$324=$216. So we can say that the firm is making a positive profit when P=$6.

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