Best output from the cost table

Profit is total revenue minus total cost. The table gives cost at every output, but nothing about revenue: there is no price, no demand schedule and no market structure. Without revenue, there is no way to compare profit at different outputs.

To see why, try two prices. If the firm could sell each unit for $12, it would make the fifth unit (marginal cost $11) but not the sixth ($17), and 5 units would be best. If the price were $18, it would make all six. If it were $4, it would lose less by shutting down. The best output changes with the price, so it cannot be determined from costs alone.

Each choice

• A. Output 2 is not tied to any rule in the table. Marginal cost is still falling there, and a firm stopping on the falling part of MC would leave cheaper units unmade.
• B. At 3 units marginal cost hits its lowest value, $3. The cheapest unit to make is not the same as the most profitable output, which needs a price.
• C. At 4 units average total cost is lowest, $8. That is the most efficient scale, but profit also depends on price, which is not given.
• D. Five units would be best at some prices, around $11 to $17, but the question gives no price, so there is nothing to show 5 is the answer.
• E (correct). Profit needs revenue as well as cost, and the table gives only cost.