Use the figure to answer the following question(s).
Figure 9-6

When the market price in Figure 9-6 is $20, the firm's maximum profit will be approximately
A) zero.
B) $3.
C) $60.
D) $400.

Question

Use the figure to answer the following question(s).
Figure 9-6

When the market price in Figure 9-6 is $20, the firm's maximum profit will be approximately
A) zero. 
B) $3. 
C) $60. 
D) $400.

Quizplus · Accepted Answer

At a market price of $20, the quantity supplied by the firm is 3, and the quantity demanded is 7. The firm's total cost at this level of production is approximately $12. At a price of $20, the profit for each unit sold is $8 (= $20 - $12). Therefore, the maximum profit for the firm is $8 x 3 units = $24. However, since the firm is also producing at a level where MR = MC, the total profit is calculated as $8 x 6 units = $48. Therefore, the maximum profit for the firm at a market price of $20 is approximately $60 ($48 + $12 fixed cost).

Use the Figure to Answer the Following Question(s)