Homework Answers
(a) A perfectly competitive firm produces at the P = MC
i.e., at the intersection point of the MC and demand curve.
MC intersects the demand curve corresponding to 26 thousand output.
Therefore, the profit-maximizing level of output for this firm is 26 thousand.
(b) At an output level of 26 thousand, price and ATC both are equal to 8.
Profit = TR - TC
Profit = PQ - ATC * Q
Profit = Q ( P - ATC)
Profit = Q ( 8 - 8)
Profit = 0
Compamy earns a zero profit.
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