$D _ { M }$ represents market demand, $S _ { F }$ represents the fringe supply curve, $D _ { R }$ represents the dominant firm's residual demand curve, $M R _ { R }$ represents the dominant firm's marginal revenue curve, and $M C$ represents the dominant firm's marginal cost curve.

-Consider the information above. In equilibrium, what will the dominant firm's profit be?
A)$8,100
B)$2,025
C)$4,050
D)$3,600

Question

$D _ { M }$ represents market demand, $S _ { F }$ represents the fringe supply curve, $D _ { R }$ represents the dominant firm's residual demand curve, $M R _ { R }$ represents the dominant firm's marginal revenue curve, and $M C$ represents the dominant firm's marginal cost curve.

-Consider the information above. In equilibrium, what will the dominant firm's profit be?
A)$8,100 
B)$2,025 
C)$4,050 
D)$3,600

Quizplus · Accepted Answer

In the given graph, the dominant firm produces at QD where its marginal cost intersects with its marginal revenue (MRD) curve. The price charged is P, which is read off from the market demand curve (DM). The dominant firm's profit is the rectangle formed by the difference between P and its average total cost (ATC) multiplied by QD. Therefore, the dominant firm's profit is equal to (P - ATC) × QD, which is equal to ($60 - $30) × 135 units = $4,050. Therefore, the correct answer is (C). In equilibrium, the dominant firm produces where its marginal cost equals its marginal revenue, which occurs where MC intersects with MR-R. From this point, we can draw a horizontal line to meet the market demand curve Dm. This gives us the dominant firm's equilibrium quantity and price.

The dominant firm's profit is equal to the area of the rectangle bounded by the price, the quantity, and the average total cost curve. This rectangle has height $15 and width 270, so its area is 4050. Thus, the correct answer is C) $4,050.

DMD _ { M }DM​ Represents Market Demand SFS _ { F }SF​

$D _ { M }$ Represents Market Demand $S _ { F }$