The following figure shows the demand and cost curves facing a firm with market power in the short run. The firm will sell its output at a price of

Question

The following figure shows the demand and cost curves facing a firm with market power in the short run.  The firm will sell its output at a price of

Quizplus · Accepted Answer

The profit maximizing output level is where MR=MC. At an output level of 7, MR=$5 and MC=$5, indicating that this is the profit maximizing output level. At this output level, the firm will set a price equal to the demand curve at that quantity, which is $5. Therefore, the answer is D.

The Following Figure Shows the Demand and Cost Curves Facing