Figure 8.4.2
-Refer to Figure 8.4.2 above. When the coffee farmer maximizes profit, how much is his profit?
A) $116
B) $97
C) $1,624
D) $2,134

Question

Figure 8.4.2
-Refer to Figure 8.4.2 above. When the coffee farmer maximizes profit, how much is his profit?
A) $116 
B) $97 
C) $1,624 
D) $2,134

Quizplus · Accepted Answer

The profit-maximizing quantity of coffee to produce is where marginal revenue (MR) equals marginal cost (MC), which is 200 pounds of coffee at a price of $8 per pound. Therefore, the total revenue (TR) is 200 x $8 = $1,600. The total cost (TC) at this output is $466, which includes $200 fixed costs and $266 variable costs. Thus, the profit is TR - TC = $1,600 - $466 = $1,134. However, since the farmer receives a subsidy of $1 per pound of coffee, the total profit is increased to $1,134 + (200 x $1) = $2,134.

Figure 8.4.2 -Refer to Figure 8.4.2 Above. When the Coffee Farmer Maximizes