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(D) 7 units at a $14.00 loss is the right response.
The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $28, the competitive firm will produce 7 units at a loss of $14.00.
Feature of a purely competitive market?
All businesses in an industry will charge the same price for their products because firms in a perfectly competitive market are price takers. There are no entrance barriers in this market system because entry and departure are both free.
If the market price for the firm's product is $28:
If there is no amount at which P = MC, then the firm will create the final quantity at which P > MC, where P is the price and MC is the marginal cost. This is done in an effort to maximize profit. Â P = MC AVC, then This company should cease operations and create nothing.
Here P = 28. No quantity exists for MC = P = 28. Q = 7 is the last quantity where P > MC occurs. He should therefore create 7 units. (Note that when quantity(Q) = 7, P > AVC. This company shouldn't close)
Profit is equal to P×Q - ATC×Q, where P is the price and is equal to 28, ATC is the average total cost and is equal to 30, and Q is the quantity.
Profit = 28×7 - 30×7
     = 196-210
     = -14,  (which indicates that this company will experience a loss.)
Cost information for a corporation selling in a market that is only competitive is provided in the table that follows. If the product's market price is $28, the rival firm will make 7 units at a $14.00 loss.
Therefore, (D) 7 units at a $14.00 loss is the right response.
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