A profit-maximizing firm in a competitive market is...

A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has average revenue of \$10, average total cost of \$8, and fixed cost of $200. a. What is its profit? b. What is its marginal cost? c. What is its average variable cost? d. Is the efficient scale of the firm more than, less than, or exactly 100 units?

A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has average revenue of \$10, average total cost of \$8, and fixed cost of $200.
a. What is its profit?
b. What is its marginal cost?
c. What is its average variable cost?
d. Is the efficient scale of the firm more than, less
than, or exactly 100 units?

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Key Concepts

Average Variable Cost

Average variable cost represents the variable portion of the cost per unit of output. It is calculated by subtracting the average fixed cost from the average total cost, providing a measure of the cost of production that can vary with output levels.

Efficient Scale

The efficient scale of a firm is the level of production at which the average total cost is minimized. Operating at this output level ensures that the firm is producing as efficiently as possible, thereby minimizing costs per unit.

Profit Maximization

Profit maximization in a competitive market involves producing output where the marginal revenue (which equals the market price) equals the marginal cost. This ensures that producing an additional unit does not decrease profit, and overall profit is calculated as the difference between total revenue and total cost.

Marginal Cost

Marginal cost is the additional cost incurred by producing one more unit of output. In a competitive market, a firm maximizes profit by producing up to the point where the marginal cost equals the market price, which reflects marginal revenue.

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