The table shows the costs that a firm faces when producing corn in a perfectly competitive...

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The table shows the costs that a firm faces when producing corn in a perfectly competitive market. Use it to answer the follo

business economics

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Answer 1

Answer #1

Quantity (bushels)	Total Cost, $	Marginal Cost, $	Marginal Revenue (= Price), $
0	36	-	-
1	46	10	16
2	54	8	16
3	60	6	16
4	64	4	16
5	65	1	16
6	69	4	16
7	77	8	16
8	92	15	16
9	117	25	16
10	160	43	16

Marginal Cost of Nth unit = Total cost of N units - Total Cost of (N-1) units

Price of corn = $16 per bushe; = Marginal revenue (As the market is perfectly competitive)

The profit of a firm increases as long as the marginal revenue is higher than the marginal cost. The profit-maximizing quantity is the highest quantity up to which the marginal cost remains less than or equal to marginal revenue.

From the above table, we observe that the marginal cost of producing corn remains less than the marginal revenue/price of corn up to a quantity of 8 bushels. Therefore, the farm should grow 8 bushels of corn.

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Answer 2

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