Figure: The Restaurant Market (Figure: The Restaurant Market) The figure The Restaurant Market shows curves facing a typical restaurant in a community.Assume that many firms, differentiated products, and easy entry and easy exit characterize the restaurant market.For the restaurant shown here, the profit per unit is:

Question

Figure: The Restaurant Market   (Figure: The Restaurant Market) The figure The Restaurant Market shows curves facing a typical restaurant in a community.Assume that many firms, differentiated products, and easy entry and easy exit characterize the restaurant market.For the restaurant shown here, the profit per unit is:

Quizplus · Accepted Answer

The profit per unit is equal to the difference between the price and the average total cost (ATC) at the quantity produced. In this figure, the price is given by the demand curve facing the restaurant (D) and the ATC is given by the curve that is tangent to the average revenue (AR) curve at the quantity produced (Q). Therefore, the profit per unit for the restaurant shown here is equal to the distance between the demand curve (D) and the ATC curve at the quantity produced (Q) and this is represented by the vertical distance between points b and f, which correspond to the intersection of D and ATC. Hence, the profit per unit is bf.

Figure: the Restaurant Market (Figure: the Restaurant Market)