Homework Answers
Answer
The correct answer is (A) $15.
In order to maximize profit a competitive firm produces that quantity at which P = MC
where P = Price and MC = Marginal Cost.
It is given that P = Market price = 10. We can see from above figure that P = MC = 10 when Quantity(Q) = 5 units.
When Quantity= 5 units, ATC = Average Total Cost = 7.
Profit = TR - TC
where TR = Total Revenue = P*Q = 10*5 = 50 and TC = Total Cost = Average Total Cost*Q = 7*5 = 35
Thus, Profit = TR - TC = 50 - 35 = $15
Hence, the correct answer is (A) $15.
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