Question

The table shows the costs that a firm faces when producing corn in a perfectly competitive market. Use it to answer the following questions. Show your work. Quantity (bushels) | 0 1 2 3 4. 5 6 7 8 9 10 Total Cost (dollars) | 36 | 46 54 60 | 64 | 65 | 69 | 7792 117 | 160 If the price for corn is $7 per bushel, how many bushels of corn should the farm grow?

Answer 1

The firm is operating in a perfectly competitive market.

A firm in perfectly competitive market maximizes profit when it produce that level of output corresponding to which price equals marginal cost. If there is no such output in explicit terms where price equals the marginal cost then firm produce up to that level to which price is greater than the marginal cost.

Following table shows the marginal cost schedule -

Quantity (bushels)	Total Cost (dollars)	Marginal Cost (dollars)
0	36	36
1	46	10
2	54	8
3	60	6
4	64	4
5	65	1
6	69	4
7	77	8
8	92	15
9	117	25
10	160	43

The price of corn is $7 per bushel.

The price exceeds the marginal cost upto production of 6 bushels.

So,

The farm should grow 6 bushels of corn.