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

-Refer to Figure 16-9.When the firm is maximizing its profit,

Question

Figure 16-9
The figure is drawn for a monopolistically-competitive firm.
 
-Refer to Figure 16-9.When the firm is maximizing its profit,

Quizplus · Accepted Answer

At the profit-maximizing level of output, the firm produces where MR=MC, which is at a quantity of 8 in this figure. At this quantity, the price (or AR) is $1,750, and the total revenue is TR = $1,750 x 8 = $14,000. The average total cost (ATC) at this output level is $2,000, and total cost is TC = $2,000 x 8 = $16,000. Therefore, the profit at this output level is TR - TC = $14,000 - $16,000 = -$2,000, which is the maximum profit when the firm is producing in the short run. Choice B is the only option that matches these values. Furthermore, choice D is incorrect because it refers to the slope between two points on the marginal cost curve, while the question is asking for a profit-maximizing output level.

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