Quantity of Output

Total Cost

0

$12

1

$14

2

$18

3

$24

4

$32

5

$42

6

$54

7

$68 The table above shows the total cost function for a typical firm producing hats in a perfectly competitive market. The market price for hats is$9

per hat.

(a) Calculate the average variable cost of the fifth unit.Show your work.

(b) What is the firm's profit-maximizing quantity of hats? Explain using marginal analysis.

(c) Draw a correctly labeled graph showing the firm's demand and marginal cost curves, and show the profit-maximizing quantity of hats determined in part (b).

(d) If the rent of the building the firm occupies increases, what will happen to the firm's profit-maximizing quantity of output in the short run? Explain.