Ballpoint pens are commodity items produced by a very larger number of firms and the industry is purely competitive. The wholesale price of one box of Company A’s pens is $5.00. The firm is considering plant expansion and the total cost schedule for each expansion is shown below: Quant Produced Total Cost 1000 4500 1250 5250 1500 6500 1750 8000 Based on this information, the number of boxes produced will be: A. 1000 B. 1250 C. 1500 D. 1750 The answer is C, but at production of 1250 and 1500 total profit will be 1000 either way, so why is C better than B? Should they produce ~1,375 to maximize profit? Or given the choices shouldn’t they produce 1250 and divert the additional capital/labor to make an additional 250 to something else?

purely competitive = perfect competition under perfect competition, p = mc here we have p = 5 so mc must be 5 calculate quantity where mc = 5, which is c

C under perfect competition, produces keep producing until MC = PC MC @ 1250 is 3 MC @ 1500 is 5. and mc @ 1750 is 6

How are you calculating marginal cost at different quantity levels? Doesn’t a perfectly competitive firm also produce where average total costs are minimized ? Isn’t that answer B ? Please explain

In a perfect competition, MC = P. MC = Change in TC / Change in Qty Thus, (5250-4500)/(1250-1000) = 3 (6500-5250)/(1500-1250) = 5 (8000-6500)/(1750-1500) = 6 The qty produced by price-takers must satisfy MC=P to maximize economic profit… In this case, C…