Question

Suppose that you can sell as much of a product (in integer units) as you like at $68 per unit. Your marginal cost (MC) for producing the qth unit is given by: MC = 9q. This means that each unit costs more to produce than the previous one (e.g., the first unit costs 9*1, the second unit (by itself) costs 9*2, etc.). If fixed costs are $60, what is the optimal output level?

Answer 1

Answer:

8 units

Explanation:

P = $68 per unit

MC = 9q

Fixed cost = $60

It is noted that seller can sell as much as a product at $68 per unit. This means that the firm is price taken, hence, it is case of perfect competition.

For a perfectly competitive firm, the optimal output is at: P = MC

i.e. 68 = 9q

=> q = 68/9

=> q = 7.556

> q = 8

So, the optimal output level is 8 units.