Suppose a firm has the following costs: Output (units) 10 11 12 13 14 15 16 17 18 19 Total cost ($) 50 52 56 62 70 80 92 106 122 140 a) If the prevailing market price is $14 per unit, how much should the firm produce? b) How much profit will it earn at that output rate? c) If the market price dropped to $2, how much should this firm produce? d) How much profit will it make at that lower price?

Recall that to determine the quantity of goods supplied, the firm will compare the marginal cost of producing the last unit against the market price. The firm will produce the last unit only if the marginal cost is lower than the market price. The following table shows that marginal cost:

a) If the market price is $14, the firm will produce 16 units. If the firm produces more than that, the marginal cost will exceed the price.

b) When producing 16 units, total revenue = 14*16 = 224, total cost = 70, total profit = total revenue - total cost = 224 - 70 = $154.

c) If the market price is $2, the firm will produce 11 units. If the firm produces more than that, the marginal cost of additional output outweighs the marginal cost, therefore it is not profitable to do so.

d) When producing 11 units, total revenue = 11*2 = 22, total cost = 52, total profit = total revenue - total cost = 22 - 52 = -$30.