Question

In the figure shown at the right, what is the profit at the profit maximizing output and price? 1001 O B., $2,300 O C. $414 O D. $1,886 MC ATC 60- $41 28 46 62 10 20 30 50 60 70 80 90

Answer 1

The figure shows the equilibrium condition of a firm under perfect competition. In a perfectly competitive market the firms cannot influence the market price by changing its volume of output. The firm can sell any amount of output at the ruling price. Hence the demand curve or average revenue curve of the firm will be a horizontal straight-line parallel to the OX axis. Since all output can be sold at a single price there will no difference between the AR and MR. Here the blue colored‘d’ curve is the demand curve or average revenue curve faced by the firm. The firm adjusts its output according to the ruling price in the market. The firm adjust its output and maximize its profit where it’s MC=MR.

The equilibrium output of the firm is 46 units where its MC equates with MR. The profit is the difference between the price per unit and cost per unit. At the equilibrium level of output(46 units) the maker price for the product is $50 and the cost per unit is (ATC) is $41. Thus the firm earns a profit of $9 from one unit of output. Therefore, from the sale of output equal to 46 units the firm earns a total profit equal to $9×46=$414

Answer: C-$414.