Question

A price-taking firm makes air conditioners. The market price of one of its new air conditioners is $130. The firm's total cost information is given in the table below: Instructions: Calculate marginal cost, and enter your responses as whole numbers. Air conditioners per day Total cost ($ per day) Marginal cost ($ per day) 1 100 100 2 150 3 220 4 310 5 405 6 510 7 650 8 800 How many air conditioners should the firm produce per day if its goal is to maximize its profit? air conditioners per day.

Answer 1

Marginal cost (MC) = Change in Total cost (TC) / Change in Quantity (Q)

Q	TC	MC
1	100
2	150	50
3	220	70
4	310	90
5	405	95
6	510	105
7	650	140
8	800	150

A price taking firm maximizes profit by equating price with MC. Since in this case equality does not hold, we compute profit maximizing output as follows.

When Q = 6, MC = $105, therefore Price > MC.

When Q = 7, MC = $140, therefore Price < MC (causing a marginal loss).

Therefore, profit-maximizing quantity = 6