Question

A perfectly competitive market has a market price of $15. At an output quantity of 33...

A perfectly competitive market has a market price of $15. At an output quantity of 33 units, marginal cost is minimized at $11. At an output quantity of 42 units, marginal cost is $15. At an output quantity of 50 units, marginal cost is $17.

What is the profit maximizing quantity of output?

What is the profit maximizing price?

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Answer #1
Q MC PQ Change in PQ/Change in Q=MR
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33 11 495 (495-0)/(33-0)=15
42 15 630 (630-495)/(42-33)=15
50 17 850 (850-630)/(50-42)=27.5

The profits are maximized where the marginal cost equals the marginal revenue. Marginal revenue is the change in the total revenue due to the sale of an additional unit. The total revenue, on the other hand, is calculated by multiplying the price by quantity.

Since MC=15=MR at 42 units, thus the profit-maximizing output is 42 units.

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