A perfectly competitive firm, earning economic profits, produces and sells 100 units of output at a price of $20 per unit. If its marginal cost of increasing output to a rate of 101 units is $18, which of the following statements is correct

A. the total revenue from selling 101 units is the same as the total revenue from selling 100 units.
B. the total profit from selling 101 units is $2 greater than the total profit from selling 100 units.
C. the total cost of producing 101 units is $2 greater than the total cost of producing 100 units.
D. to sell 101 units, the firm must reduce its price below $20. (E) to sell 101 units, the firm must raise its price above $20.

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TonieCee TonieCee · Answer 1 · 2020-02-28T07:25:56+01:00

Answer: The answer is B. the total profit from selling 101 units is $2 greater than the total profit from selling 100 units.

Explanation: Price per unit is $20. Therefore at an output of 100 units, revenue will be:

100 X $20 = $2,000.

At an output of 101 units, the revenue will be:

101 X $20 = $2,020.

But from the question above, we see that an extra $18 was spent to meet up with 101 units. So the profit on 101 units is not $20. It is:

2,020 - 2000 = $20.

$20 - $18 (marginal cost) = $2.