Refer to Table 9.2. The market price is $42 and this firm is producing four units of output. Which of the following would you recommend to this firm?

A) Continue producing four units of output, because the firm is able to make an economic profit.
B) Increase output to six units so that marginal cost equals marginal revenue.
C) Reduce price to $17 so that marginal cost will equal marginal revenue at 4 units of output.
D) Increase output to seven units so that price is less than marginal cost.

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Jordon Roberts · Accepted Answer

Final Answer : B, Explanation :  Given the market price of $42, the firm should produce where marginal cost (MC) equals marginal revenue (MR), which is also $42 in perfect competition. Looking at the table, the MC at 6 units is closest to $42, suggesting an increase in output to 6 units is optimal.

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