Figure 16-9
The figure is drawn for a monopolistically-competitive firm.

-Refer to Figure 16-9.The firm's maximum profit is

Question

Figure 16-9
The figure is drawn for a monopolistically-competitive firm.
 
-Refer to Figure 16-9.The firm's maximum profit is

Quizplus · Accepted Answer

The firm's profit-maximizing output is at the quantity where marginal revenue equals marginal cost. In this case, it is at an output of 6 units. At this output level, the firm's average total cost is $4,000 per unit. Therefore, the firm's total costs are $24,000. The price for each unit is $2,000, so the firm's total revenue is $12,000. Thus, the firm's maximum profit is ($12,000 - $24,000) = -$12,000. However, since the firm's fixed costs are $10,000, the firm's actual profit is ($12,000 - $24,000 - $10,000) = -$22,000. Thus, the best choice is C.

Figure 16-9 The Figure Is Drawn for a Monopolistically-Competitive Firm