Question

CENGAGE MINDTAP Homework (Ch 14) 4. Profit maximization in the cost-curve diagram Suppose that the market for candles is a competitive market, The following graph shows the daly cost curves of a firm operating in this market Hint: After placing the rectangle on the graph, you can select an endpoint to see the coordinates of that point 35 Proi or Loss ATC AVC MC 0 10 12 20 14 12 QUANTITY (Thousands af candes per dayli In the short run, at a market price of $20 per candle, this firm mil choose to preduce candles per day On the preceding graph, use the blue rectangle (cirale symbals) to shade the area representing the rm's proit or lass i the market price is 120 and the firm chooses to produce ouantity you aready selected Note: In the following question, enter a postive mumber, even if it represents a loas The area of this rectangle indicates that the firm's would be thousand per day in the shart run gy (apueo Jed sriPa) 30dd

Answer 1

Setting P=MC, the firm will produce 9000 units per day

where ATC = 16 so the firm is making economic profits

PRICE Dollars per candie) 2 0 10 12 14 10 11 QUANTITY (Thousands of candies per day! 20

The area of the rectangle indicates that the firm's economic profit would be (20-16)*9000 = 36 thousand per day.