Refer to the following:
A manger of a firm with market power faces the marginal revenue product and average revenue product curves shown below. The firm incurs weekly fixed costs of $1,800. The firm employs a single variable input, labor, which costs $600 per worker each week.

-The maximum profit the firm can earn is _____________.

Question

Refer to the following:
A manger of a firm with market power faces the marginal revenue product and average revenue product curves shown below. The firm incurs weekly fixed costs of $1,800. The firm employs a single variable input, labor, which costs $600 per worker each week.
 
-The maximum profit the firm can earn is _____________.

Quizplus · Accepted Answer

The profit-maximizing level of output is where MR=MC, which occurs at a quantity of 3 workers. At this quantity, the firm's total revenue is $6,300 ($2,100 per worker x 3 workers), and its total variable costs are $1,800 ($600 per worker x 3 workers). This results in total profit of $4,500. Subtracting the fixed cost of $1,800 gives a maximum weekly profit of $2,700. Therefore, the best choice is B.

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