Figure 16-1. The figure is drawn for a monopolistically competitive firm.

-Refer to Figure 16-1.If the average total cost is $15 at the profit-maximizing quantity,then the firm's maximum profit is

Question

Figure 16-1. The figure is drawn for a monopolistically competitive firm.
 
-Refer to Figure 16-1.If the average total cost is $15 at the profit-maximizing quantity,then the firm's maximum profit is

Quizplus · Accepted Answer

At the profit-maximizing quantity, the firm produces where marginal revenue equals marginal cost, which is at a quantity of 30 in the graph. At this quantity, the price is $30 ($15 average total cost plus $15 markup), and the total revenue is $900 ($30 price multiplied by 30 quantity). The total cost is $540 ($15 average total cost multiplied by 30 quantity), and the maximum profit is $360 ($900 total revenue minus $540 total cost).