Question

Worker Output and Costs
# of Workers
Output
Fixed Cost ($)

Variable Cost ($) Total Revenue ($)

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)
The firm should choose to produce 1,200 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 300 units of output.

Answer 1

Produce 1,200 units.

Calculation (Profit = TR − (FC + VC)):
- 300 units: TR 150 − (100 + 90) = 150 − 190 = −40
- 800 units: TR 400 − (100 + 295) = 400 − 395 = 5
- 1,200 units: TR 600 − (100 + 490) = 600 − 590 = 10 ← maximum profit
- 1,500 units: TR 750 − (100 + 670) = 750 − 770 = −20

Profit is highest at 1,200 units, so the firm should produce 1,200.