Figure 12-5

Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 12-5.If the market price is $20, what is the amount of the firm's profit?

Question

Figure 12-5
  
Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 12-5.If the market price is $20, what is the amount of the firm's profit?

Quizplus · Accepted Answer

At a market price of $20, the firm's profit is equal to the area between the price and the average total cost (ATC) curves multiplied by the quantity produced. This can be calculated as:
Profit = (20-8) x 225 = $2,700
Since the firm's fixed costs are $4,050, the total profit is:
Profit = $2,700 - $4,050 = $-1,350
Therefore, the firm is making a loss of $1,350 at a market price of $20. Of the given choices, option B is the closest to this loss amount.

Figure 12-5 Figure 12-5 Shows Cost and Demand Curves Facing a Typical