Question

 4. Profit maximization in the cost-curve diagram

 Suppose that the market for air fresheners is a competitive market. The following graph shows the daily 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.

 In the short run, at a market price of $20 per air freshener, this firm will choose to produce _______  air fresheners per day.

 On the preceding graph, use the blue rectangle (circle symbols) to shade the area representing the firm's profit or loss if the market price is $20 and the firm chooses to produce the quantity you already selected.

 Note: In the following question, enter a positive number, even if it represents a loss.

 The area of this rectangle indicates that the firm's _______  would be _______  thousand per day in the short run.

Answer 1

Answer :

At $20 price level in short run the firm will produce 9 thousand air fresheners per day.

In the above picture's diagram the shaded area is the firm's profit area.

Per unit profit = Price - ATC = 20 - 16 = $4

Per day profit = Per unit profit * Quantity = 4 * 9 thousands = 36 thousands.

Therefore, here the rectangle area is the firm's profit of  $36 thousand per day in short-run.