Refer to the accompanying table.A firm participating in a competitive market with these costs would be making a profit if the price is:

Question

Quizplus · Accepted Answer

To determine the profit-maximizing price, we need to find the price that will yield the highest profit (i.e. the price where marginal revenue equals marginal cost). Looking at the table, the marginal cost is constant at $4, so we just need to find the price where the quantity demanded equals 8 (which is the quantity where the profit-maximizing price and quantity intersect). At a price of $8, the quantity demanded is 8, and the total cost is $32 (8 x $4), so the total revenue is $64 (8 x $8), yielding a profit of $32. At a price of $6, the quantity demanded is 10, and the total cost is $40 (10 x $4), so the total revenue is $60 (10 x $6), yielding a profit of $20. Therefore, the firm would be making a profit if the price is $8, but not at any other price.

Refer to the Accompanying Table