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Ch6 Q3

# Ch6 Q3 - Ch6 Q3 The profit-maximizing quantity is 20 units...

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Ch6 Q3 The profit-maximizing quantity is 20 units. Since the fixed cost is the sunk cost, it would not affect the decision making. Therefore we will ignore the fixed cost in the following discussion. Producer produce goods until MR equals to MC, in which the profit of the entrepreneur is maximized. In this case, the variable factor is the working hours. Fixed factor is lathe and building. Variable cost is the wages per hour pay for the employee which is \$15. At that output level, MR is \$10 which is the selling price of an extra-unit of bat, and the MC is \$8.98. We can see that, the MB is higher than MC; you may consider that the firm will produce more, however, when the level of output increase to 25units, the MC (\$12) is higher than the MB (\$10) so the profit- maximizing quantity in this given pattern is 20 units. (B) Nothing changes in the number of bats produced. As we said the fixed cost is sunk cost, and only the marginal cost will be taken to the consideration. A perfectly competitive firm face a horizontal demand curve which means P=D=MR=AR = reservation price. And in this case, MR (\$10)

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