Figure 14-4
The figure below depicts the cost structure of a firm in a competitive market.

-Refer to Figure 14-4.When market price is P₅,a profit-maximizing firm's profits can be represented by the area

Question

Figure 14-4
The figure below depicts the cost structure of a firm in a competitive market.
 
-Refer to Figure 14-4.When market price is P₅,a profit-maximizing firm's profits can be represented by the area

Quizplus · Accepted Answer

When market price is P₅, the profit-maximizing output level is Q₃ where the marginal cost equals the market price. The firm's total revenue is represented by the rectangle P₅ Q₃ Q₂ P₄. The total cost is represented by the rectangle P₄ Q₃ Q₁ P₂. Therefore, the firm's profits can be represented by the area (P₅ - P₄) Q₃ Q₂ P₂, which is equivalent to choice C.

Figure 14-4 The Figure Below Depicts the Cost Structure of a Firm