The table given below shows the price of each unit of the product manufactured b
ID: 1221188 • Letter: T
Question
The table given below shows the price of each unit of the product manufactured by a firm and the marginal cost of producing different units of the output.
Table: 10.1
Output
Price
Marginal Cost
0
$1
$0
1
$1
$1.00
2
$1
$.80
3
$1
$.70
4
$1
$.50
5
$1
$.50
6
$1
$.70
7
$1
$.80
8
$1
$.86
9
$1
$1.00
10
$1
$1.09
Refer to Table 10.1. If the market price of the good falls to $0.80 per unit, the firm:
should decrease its output to six units, in order to maximize profit.
should decrease its output to seven units, in order to maximize profit.
should increase its output to ten units, in order to maximize profit.
should decrease its output to four units, in order to maximize profit.
should keep its output level unchanged, in order to maximize profit.
Output
Price
Marginal Cost
0
$1
$0
1
$1
$1.00
2
$1
$.80
3
$1
$.70
4
$1
$.50
5
$1
$.50
6
$1
$.70
7
$1
$.80
8
$1
$.86
9
$1
$1.00
10
$1
$1.09
Explanation / Answer
should decrease its output to seven units, in order to maximize profiT
Because at units 7, marginal cost equals marginal revenue which is the condition for level of maximum profits
. and beyond 7 units, marginal costs will be higher than marginal revenues, so if you produce more than 7 units; you will start making marginal loss.
b.should decrease its output to seven units, in order to maximize profiT
Because at units 7, marginal cost equals marginal revenue which is the condition for level of maximum profits
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