Question

A firm sells wheat in a perfectly competitive market. Below is a table of the total costs associated with different levels of quantity. If price is $30, how much will it produce?

Quantity

Total Cost

100

$     200.00

120

$     300.00

140

$     500.00

150

$     800.00

160

$ 1,200.00

Answer 1

A perfectly competitive market is the one in which many firms compete each other, That means a firm can enter and exit a competiton easily and the products are identical. in this cut throat competition One way to determine the most profitable quantity to produce is to see at what quantity total revenue exceeds total cost by the largest amount. So at a constant price of $ 30, the most profitable situation is producing 140 units @ $500.00 so that a profit of $ 3700 can be made. Same profit can also be made at a production quantity of 150 units, but if we are are getting the same level of profit at 140 units itself what is the need to produce extra 10 units