Question

Adina owns a music academy and gives violin lessons for children. Her business operates in a competitive industry. Adina gives violin lessons to 20 children per month. Her monthly total revenue is $4,000. The marginal cost for her violins is $200 per child. In order to maximize profits, Adina should

(a) We do not have enough information to answer the question.

(b) continue to give lessons to 20 children per month.

(c) give lessons to more than 20 children per month.

(d) give lessons to fewer than 20 children per month.

NOTE: The answer is NOT (c) give lessons to more than 20 children per month

Answer 1

According to given question since Adina is operating in a perfect competitive market

So profit maximization occurs where intersection of price and marginal cost occurs

From the given question the marginal cost is $200 per child

Now