The figure below shows the cost curves of a firm in a competitive market. The firm always makes the choice to maximize its profit.

-Refer to the figure above. If the market price of the product is $3.25, the firm's profit maximizing output is ________ and the firm's maximum profit is ________.
A) 1,200 units; $1,200
B) 1,200 units; $1,800
C) 1,100 units; $875
D) 1,100 units; $600

Question

The figure below shows the cost curves of a firm in a competitive market. The firm always makes the choice to maximize its profit.
 
-Refer to the figure above. If the market price of the product is $3.25, the firm's profit maximizing output is ________ and the firm's maximum profit is ________.
A) 1,200 units; $1,200 
B) 1,200 units; $1,800 
C) 1,100 units; $875 
D) 1,100 units; $600

Quizplus · Accepted Answer

The profit-maximizing output is where marginal revenue equals marginal cost. In this case, marginal revenue is $3.25 and marginal cost is $1.50 at an output of 1,200 units. Therefore, the firm's profit-maximizing output is 1,200 units. The firm's maximum profit is equal to total revenue minus total cost. At an output of 1,200 units, total revenue is $3.25 * 1,200 = $3,900 and total cost is $1.50 * 1,200 = $1,800. Therefore, the firm's maximum profit is $3,900 - $1,800 = $2,100.

The Figure Below Shows the Cost Curves of a Firm