Output Fixed Cost Variable Cost

1 $5 $10
2 $5 $27
3 $5 $55
4 $5 $91
5 $5 $145

(a) What is the total cost when output is 2?
(b) What is the marginal cost of the third unit?
(c) How much should this firm produce if the market price is $24?

a) when output is 2, from your table, total fixed costs are $5 and total variable costs are $27. Simple arithmatic.

b) marginal cost is the change in cost from a marginal (e.g., 1 unit) change in production.
c) always always always, profit is maximized when marginal cost=marginal revenue.

To answer these questions, we need to understand the different components of cost and how they vary with output.

Fixed Cost: Fixed costs are those costs that do not change with the level of output. In this case, the fixed cost is $5, which remains constant regardless of the level of production.

Variable Cost: Variable costs are those costs that vary with the level of output. In this case, the variable cost increases as the output increases.

(a) What is the total cost when output is 2?
To calculate the total cost, we need to add the fixed cost and the variable cost at the given level of output. In this case, since the fixed cost is $5 and the variable cost when output is 2 is $27, the total cost would be $5 + $27 = $32.

(b) What is the marginal cost of the third unit?
The marginal cost is the increase in cost for producing an additional unit. In this case, we can calculate the marginal cost by taking the difference in variable cost between producing the third unit and the second unit. The variable cost for the third unit is $55, and the variable cost for the second unit is $27. Therefore, the marginal cost of the third unit would be $55 - $27 = $28.

(c) How much should this firm produce if the market price is $24?
To determine the level of output the firm should produce at given the market price, we need to compare the market price with the marginal cost. If the market price is higher than the marginal cost, the firm should produce more. If the market price is lower than the marginal cost, the firm should produce less.

In this case, if the market price is $24, we need to compare it with the marginal cost of producing additional units. Since the marginal cost is $28, which is higher than the market price, the firm should not produce any additional units beyond the third unit. Thus, the firm should produce 3 units.