Assume that the price of silk ties in a perfectly competitiv

Assume that the price of silk ties in a perfectly competitive market is $19 and that the typical firm confronts the following costs: What is the profit-maximizing rate of output for the firm? How much profit does the firm earn at that rate of output? If the price of ties fell to $15, how many ties should the firm produce?

Solution

(a)

Profit maximizing rate of output rule is the output level where the price is equal to the marginal cost that is the unit 7 as shown in the table below where MC of $19 is equal to the price of $19 and the highest profit is also shown as $32 at unit 7.

b.

as shown above the comany earns $32 at unit 7.

c.

5 units should be roduced as beyond tha level the profit will decline.

quantity	0	1	2	3	4	5	6	7	8	9	10
total cost	10	17	26	37	50	65	82	101	122	145	170
total revenue	0	19	38	57	76	95	114	133	152	171	190
total profit	(10)	2	8	20	26	30	32	32	30	26	20
Marginal cost		7	9	11	13	15	17	19	21	23	25