Figure 11-5

-Refer to Figure 11-5.The candy store represented in the diagram is currently selling Qₐ units of candy at a price of Pₐ.Is this candy store maximizing its profit and if it is not,what would you recommend to the firm?

Question

Figure 11-5
 
-Refer to Figure 11-5.The candy store represented in the diagram is currently selling Qₐ units of candy at a price of Pₐ.Is this candy store maximizing its profit and if it is not,what would you recommend to the firm?

Quizplus · Accepted Answer

The candy store is not maximizing its profit at point $A$, where it is currently selling $Q_a$ units at a price of $P_a$. To maximize profit, the store should produce and sell the quantity where marginal revenue equals marginal cost, which is at point $B$. This would mean selling a lower quantity of candy at a lower price, specifically $Q_b$ units at a price of $P_b$. Therefore, the store should lower its price to $P_b$ and sell $Q_b$ units.

Figure 11-5 -Refer to Figure 11-5.The Candy Store Represented in the Diagram