Question

For the pizza seller whose marginal, average variable and average total cost curves are shown in the graph below, what is the profit-maximizing level of output and how much profit will this producer earn if the price of pizza is $1.00 per slice?

 Instructions: In the graph below, label all three curves by clicking on the dropdown to select the appropriate label. Then, indicate the profit-maximizing level of output. Enter your response as a whole number.

At the profit-maximizing level of output, the producer's profit is: $________ per day.

Answer 1

Profit maximization for a perfectly competitive firm in the short run is when P=MC. MC above the shutdown point is the supply curve of the firm. Long-run equilibrium for a perfectly competitive firm is when P=MC=ATC. It will produce at that output where Long run MC=Long run AC.

The profit-maximizing output is MC=ATC which is 425.

When the price of pizza is $1, then 400 pizzas will be sold.

Profit for the firm is (P-ATC) Q

P=$1.00

ATC=$1.25

Q=400 per day.

Profit/Loss= (1.00-1.25)400

=-0.25 x 400

=-$100 (loss) per day.

Answer 2

Here we use the concept of MR = MC to find the profit maximizing or loss minimizing level .

Price = $1.00 P = MR (marginal revenue) = Loss Profit maximization occurs where MR = MC here R cuts MC at point A Price = $1.00 Quantity = 400 units At 400 units the P < ATC Price is less than Average total cost or cost per units So there is loss Profit = Total Revenue - Total cost = (P times Q) - (ATC times Q) = (1 times 400) - (1.25 times 400) = 400 - 500 = -100$ rightarrow Negative profit or loss

Answer 3

Since an optimal quantity is produced by a perfectly competitive firm and profit-maximizing condition is

P=MC

Since price is $1, Hence the optimal quantity will be 400 quantity.

ATC=1.25

Profit=(P-ATC)Q

=(1-1.25)400

=-$100

Hence there is negative profit of $100 at profit-maximizing output level. Hence there is loss of $100.

Answer 4

3.25 2.75 225 2.00 2 1.75 1.50 125 1.00 050 0.00 100 200 ac C00 800 CO Quantity (slices/day) Ine total revenue (TR)- 400*1.00 400 The total costs (TC) = 400*1.25 = 500 Profits-TR-TC = 400-500 =-100(losses)