Check Your Understanding

1. Question

   Suppose a firm can sell as many units of output as it wants for a price of $15 per unit and faces total costs as indicated in the table below. Use the optimal output rule to determine the profit-maximizing level of output for the firm.

   Quantity	Total cost
   0	$2
   1	10
   2	20
   3	33
   4	50
   5	71

   The profit-maximizing level of output is 3 units because marginal cost goes from being below marginal revenue at a quantity of 3 to being above marginal revenue at a quantity of 4, thus passing through marginal revenue at the 3rd unit.

2. Question

   Use the data from Question 1 to graph the firm’s marginal cost and marginal revenue curves and show the profit-maximizing level of output.