Table 13-5

Table 13-5 shows the demand and cost data facing a monopolistically competitive producer of canvas bags.
-Refer to Table 13-5.At the profit-maximizing or loss-minimizing output level,
A)the firm makes a profit of $12.
B)the firm incurs a loss equal to its fixed cost.
C)the firm makes a profit of $16.
D)the firm incurs a loss of $14.

Question

Table 13-5
  
Table 13-5 shows the demand and cost data facing a monopolistically competitive producer of canvas bags.
-Refer to Table 13-5.At the profit-maximizing or loss-minimizing output level,
A)the firm makes a profit of $12. 
B)the firm incurs a loss equal to its fixed cost. 
C)the firm makes a profit of $16. 
D)the firm incurs a loss of $14.

Quizplus · Accepted Answer

The profit-maximizing or loss-minimizing output level is where marginal revenue (MR) equals marginal cost (MC). From the table, we can see that at an output of 4 bags, MR=$16 and MC=$14, which indicates that the firm is earning a profit of $16-$14= $2 per bag. At this output level, the total revenue is $80 and the total cost is $64 (fixed cost + variable cost). Therefore, the firm makes a profit of $16 ($80-$64) at the profit-maximizing output level of 4 bags. Therefore, the correct answer is C.

Table 13-5 Table 13-5 Shows the Demand and Cost Data Facing a and Cost