Suppose you build and sell houses in a perfectly competitive market, and the market price is $120,000. Your total costs are as shown in the table below. (Note the cost figures reflect increasing marginal costs, which would occur, for example, if the cheapest land and labor were bought first.)
Fill in the values for the Marginal Cost, Total Revenue and Total Profit Columns. Then answer these questions:
What is the profit maximizing level of output? Should you continue to produce as long as your total revenue is greater than your total cost? Explain why or why not. Use the term "marginal" in your explanation.
Quantity of Houses Total Cost Marginal Cost Total Revenue Total Profit
1 $100,000
2 $215,000
3 $345,000