At the profit-maximizing level of output, the firm's total costs will be $106.
Hence, option 2 is correct answer.
The firm will enhance its profit by employing more variable input to generate more output as long as the income from creating another unit of output (MR) exceeds the cost of producing that unit of output (MC).It is evident that increasing input will eventually cause production to decline and costs to rise according to the law of (the reality of) declining marginal productivity.
The cost of creating an extra unit of output reduces profit when the level of production reaches a point where the revenue from the additional unit of output (MR) exceeds the cost of producing the additional unit of output (MC). As a result, the company won't make that unit.
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