Question

Use the table to answer the question.

# of Workers Output Fixed Cost ($) Variable Cost ($) Total Revenue ($)
0 0 100 - -
10 300 100 90 150
20 800 100 295 400
30 1,200 100 490 600
40 1,500 100 670 750
At what output level should a perfectly competitive firm choose to produce at?

(1 point)
Responses

The firm should choose to produce 300 units of output.
The firm should choose to produce 300 units of output.

The firm should choose to produce 1,500 units of output.
The firm should choose to produce 1,500 units of output.

The firm should choose to produce 800 units of output.
The firm should choose to produce 800 units of output.

The firm should choose to produce 1,200 units of output.

Answer 1

To determine the output level that a perfectly competitive firm should produce, we examine the profits at each output level by calculating total costs (fixed cost + variable cost) and comparing them with total revenue to find the profit or loss.

Let's calculate the profit (or loss) for each level of output:

1. **For 300 units (10 workers)**:
- Fixed Cost = $100
- Variable Cost = $90
- Total Cost = $100 + $90 = $190
- Total Revenue = $150
- Profit = Total Revenue - Total Cost = $150 - $190 = -$40 (loss)

2. **For 800 units (20 workers)**:
- Fixed Cost = $100
- Variable Cost = $295
- Total Cost = $100 + $295 = $395
- Total Revenue = $400
- Profit = $400 - $395 = $5

3. **For 1,200 units (30 workers)**:
- Fixed Cost = $100
- Variable Cost = $490
- Total Cost = $100 + $490 = $590
- Total Revenue = $600
- Profit = $600 - $590 = $10

4. **For 1,500 units (40 workers)**:
- Fixed Cost = $100
- Variable Cost = $670
- Total Cost = $100 + $670 = $770
- Total Revenue = $750
- Profit = $750 - $770 = -$20 (loss)

Now, summarizing the profits:

- At 300 units: -$40 (loss)
- At 800 units: $5 (profit)
- At 1,200 units: $10 (profit)
- At 1,500 units: -$20 (loss)

The firm maximizes its profit by producing where total revenue exceeds total cost the most. In this case, producing 1,200 units yields the highest profit of $10.

Therefore, the firm should choose to produce **1,200 units of output**.