Question

Look at Table 8.13. What would happen to the firm’s profits if the market price increases to $6 per pack of raspberries?

Short answer

If the market price of raspberries rises to $\$6$per pack, the firm's profit is $\$216$.

Step-by-step solution

Definition

Profit maximization is the process by which a firm determines the cost, input levels that result in the highest profit. In the profit maximization, price, and quantity are at that point where MC=MR.

Explanation

Profit maximizing condition under perfect competition is P=MC. When P=$\$4$, profit-maximizing output = $80$raspberries because at this output level, MC

$$\begin{gathered} =\frac{\left(230-190\right)}{\left(80-70\right)} \\ =\$4 \end{gathered}$$

which is equals to price, profit =$\$90$

when market price increases to $\$6$per pack of raspberries, profit-maximizing output = $90$ raspberries because at this output level, MC

$$\begin{gathered} =\frac{\left(324-264\right)}{\left(90-80\right)} \\ =\$6 \end{gathered}$$

which is equal to the price.

Therefore, the firm's profit:

$$\begin{gathered} =TR-TC \\ =\$\left(6\right)\left(90\right) \\ =\$216 \end{gathered}$$