Use the figure to answer the following question(s).
Figure 9-4

Figure 9-4 indicates the cost conditions for a firm operating in a price-taker market. If the market price of the firm's product is $6, what action will maximize the firm's profit?

Question

Use the figure to answer the following question(s).
Figure 9-4

Figure 9-4 indicates the cost conditions for a firm operating in a price-taker market. If the market price of the firm's product is $6, what action will maximize the firm's profit?

Quizplus · Accepted Answer

To maximize profit, the firm should produce at the output level where marginal cost equals marginal revenue. From the graph, this occurs at an output level of 5 million, which is where the MC and MR curves intersect. At an output level of 5 million, the firm can sell each unit for $6 and incur a total cost of $24 million, resulting in a total revenue of $30 million and a profit of $6 million. Any other output level would result in a lower profit or even a loss.

Use the Figure to Answer the Following Question(s)