The correct option for given situation where output level can be determine in order to seek maximum profit.
Answer to Problem 7MCQ
Option d-4 bushels is correct answer.
Explanation of Solution
Given Information:
Explanation for correct options:
d.
As per the given data, the profit can be maximized when the marginal cost is equal to the market price. In this case, if market price is $15 then the output level should be 4 bushels at which the marginal cost is $12 which is closest to the price without exceeding the price. Therefore, option d is correct.
Explanation for incorrect options:
a.
If 7 units are produced then the marginal cost will exceed the price by $9 due to which firm has to incur losses. Therefore, option a is incorrect.
b.
Similarly, if 6 bushels are produced then also firm will not maximize its profit level. This is because producing high output level means high
c.
The firm should not produce the output level at which MC exceed the price to seek maximum profit. Therefore, option c is incorrect.
e.
The output level of 3 bushels means lower profit. This is because firm can maximize its profit if its marginal cost is equivalent or near to its market price. Therefore, option e is incorrect.
Average total cost: Average total cost of production per unit is comprised of two cost components that are average fixed cost and
Chapter 11R Solutions
Krugman's Economics For The Ap® Course
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