Quantity of Output Total Cost 0 $12 1 $14 2 $18 3 $24 4 $32 5 $42 6 $54 7 $68 The table above shows the total cost function for a typical firm producing hats in a perfectly competitive market. The market price for hats is $9 per hat. (a) Calculate the average variable cost of the fifth unit. Show your work. (b) What is the firm’s profit-maximizing quantity of hats? Explain using marginal analysis. (c) Draw a correctly labeled graph showing the firm’s demand and marginal cost curves, and show the profit-maximizing quantity of hats determined in part (b).

Essentials of Economics (MindTap Course List)
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ISBN:9781337091992
Author:N. Gregory Mankiw
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Chapter12: The Cost Of Production
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Quantity of Output Total Cost
0 $12
1 $14
2 $18
3 $24
4 $32
5 $42
6 $54
7 $68

The table above shows the total cost function for a typical firm producing hats in a perfectly competitive market. The market price for hats is $9 per hat.

(a) Calculate the average variable cost of the fifth unit. Show your work.

(b) What is the firm’s profit-maximizing quantity of hats? Explain using marginal analysis.

(c) Draw a correctly labeled graph showing the firm’s demand and marginal cost curves, and show the profit-maximizing quantity of hats determined in part (b).

(d) If the rent of the building the firm occupies increases, what will happen to the firm’s profit-maximizing quantity of output in the short run? Explain.

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