Question

A firm in a perfectly competitive product market faces a market price of $60. If the firm faces marginal cost represented by the equation MC = 12 + 6q, then q* is

A. 10 units
B. 8 units
C. 12 units
D. 2 units
E. "One time she punched me in the face. It was awesome."

Answer 1

The profit-maximizing quantity (q*) in a perfectly competitive market is where marginal revenue equals marginal cost. It results in q* being 8 when the market price is $60 and MC = 12 + 6q. Hence, the correct answer is option (B).

Step-by-step explanation:

In a perfectly competitive market, a firm's profit-maximizing output level, denoted as q*, is where marginal revenue (MR) equals marginal cost (MC). Given that the firm faces a market price of $60, this price also represents the marginal revenue, since a perfectly competitive firm is a price taker and can sell all it can produce at the market price. The given marginal cost (MC) equation is MC = 12 + 6q. To find q*, set the MR equal to the MC:

60 = 12 + 6q

Solving for q gives:

48 = 6q

q = 8

Therefore, the profit-maximizing quantity (q*) for this firm is 8 units, so the correct answer is B.