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Figure: Profit Maximization for a Firm in Monopolistic Competition
-(Figure: Profit Maximization for a Firm in Monopolistic Competition) Look at the figure Profit Maximization for a Firm in Monopolistic Competition. Suppose that an innovation reduces a firm's costs from ATC to ATC'. After the innovation reduces the cost, the firm's maximum economic profit is:
A) $0.
B) $30.
C) $1,500.
D) $3,000.

Question

Use the following to answer questions:
Figure: Profit Maximization for a Firm in Monopolistic Competition 
-(Figure: Profit Maximization for a Firm in Monopolistic Competition) Look at the figure Profit Maximization for a Firm in Monopolistic Competition. Suppose that an innovation reduces a firm's costs from ATC to ATC'. After the innovation reduces the cost, the firm's maximum economic profit is:
A) $0. 
B) $30. 
C) $1,500. 
D) $3,000.

Quizplus · Accepted Answer

The firm's maximum economic profit is calculated as the difference between total revenue and total cost. After the innovation, the cost is reduced to ATC', which increases the profit margin. The figure likely shows that the new profit level is $1,500.

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