The figure depicts a firm in a price-taker market. Use this figure to answer the following question(s).
Figure 9-19

Refer to Figure 9-19. At the profit-maximizing level of output, the firm will earn an economic
A) profit of AHEB.
B) loss of AGDC.
C) loss of AHEB.
D) loss of AIFB.

Question

The figure depicts a firm in a price-taker market. Use this figure to answer the following question(s).
Figure 9-19

Refer to Figure 9-19. At the profit-maximizing level of output, the firm will earn an economic
A) profit of AHEB. 
B) loss of AGDC. 
C) loss of AHEB. 
D) loss of AIFB.

Quizplus · Accepted Answer

At the profit-maximizing level of output, the firm produces at the point where MR=MC, which is point E in the figure. At this point, the price (P) is lower than the average total cost (ATC), meaning the firm is incurring losses. The economic loss is the area AHEB. Therefore, the correct answer is C, which states that the firm will earn an economic loss of AHEB.

The Figure Depicts a Firm in a Price-Taker Market