Homer's Boat Manufacturing cost function is: The marginal cost function is: If Homer can sell all the boats he produces for $1,200, what is his optimal output? Calculate Homer's profit or loss.

The profit maximizing output level is where the market price equals marginal cost (providing the price exceeds the average variable cost). To determine the optimal output level, we need to first equate marginal cost to the market price. That is, The average variable cost at this output level is: Since Homer will maximize profits at 8 units. Homer's profits are: Homer will produce and make a loss as losing $3,040 is better than not producing and losing $10,240.