Figure 10-8

-Figure 10-8 displays the cost curves of a perfectly competitive firm.Profits at a price of $10 would be approximately

Question

Figure 10-8
 
-Figure 10-8 displays the cost curves of a perfectly competitive firm.Profits at a price of $10 would be approximately

Quizplus · Accepted Answer

The point where the firm's marginal cost curve intersects with its average total cost curve represents the profit-maximizing level of output. In Figure 10-8, this occurs at a quantity of 50 units, where the marginal cost and average total cost are both equal to $6.
 
At a price of $10 per unit, the firm's total revenue would be $500 (50 units x $10), and its total cost would be $300 (50 units x $6 average total cost). Therefore, the firm's profit at a price of $10 would be $200.

Since the firm is operating in a perfectly competitive market, it has no market power and is a price-taker. This means that it must accept the market price of $10 and produce the quantity where its marginal cost equals the price.

The firm's marginal cost at this quantity is $8, which is higher than the market price of $10. As a result, the firm is earning economic profits in the short run. However, in the long run, new firms will enter the market, driving down the price and reducing the firm's profits to zero.

Figure 10-8 -Figure 10-8 Displays the Cost Curves of a Perfectly Competitive