In Exhibit 7-3, if the price of the firm’s product is $2.00 per unit, the firm will produce:
a. 20 units per day. b. 10 units per day. c. 15 units per day. d. 5 units per day.
The correct answer and explanation is:
To answer this question, we need to understand the context of the exhibit and its relationship to price and quantity. Without access to Exhibit 7-3, we can assume that the exhibit displays a supply curve or a table showing how much a firm will produce at various price levels.
In economics, a firm’s production level typically depends on the price of the product and its marginal cost. If the price of the product is $2.00 per unit, the firm will determine its production level based on its cost structure and the price it can sell the product for.
If the price of $2.00 per unit exceeds the firm’s marginal cost at a given quantity, the firm would produce that amount of output. Firms typically aim to maximize their profit by producing where marginal revenue (the price of the product) equals marginal cost.
For instance, if the firm’s marginal cost of production at 20 units is higher than $2.00, it will not produce 20 units. On the other hand, if the marginal cost at 5 units is lower than $2.00, the firm will choose to produce 5 units, as it is profitable to do so.
Now, based on the price being $2.00 per unit, you would have to refer to the exhibit to determine which quantity corresponds to a marginal cost that is less than or equal to the price. The answer choices likely correspond to the quantity produced based on the marginal cost analysis.
In summary, without access to Exhibit 7-3, the correct answer is determined by identifying the output level where the firm’s marginal cost is below or equal to the price of $2.00 per unit. Therefore, the answer would be the quantity that maximizes profit at this price point, such as 5 units per day, depending on the firm’s cost structure at that price.