Figure 11-8
Figure 11-8 shows cost and demand curves for a monopolistically competitive producer of iced tea.
-Refer to Figure 11-8.At the profit-maximizing output level the firm will

Question

Figure 11-8
  Figure 11-8 shows cost and demand curves for a monopolistically competitive producer of iced tea.
-Refer to Figure 11-8.At the profit-maximizing output level the firm will

Quizplus · Accepted Answer

At the profit-maximizing output level, the firm produces the quantity where marginal revenue (MR) equals marginal cost (MC), which is Q=20 in this case. At Q=20, the firm charges a price of $4.50, which is higher than its average total cost (ATC) of $4. At this price, the firm earns a profit per unit of $0.50 ($4.50 - $4), and sells 20 units, leading to a total profit of $10 ($0.50 x 20). Therefore, the firm earns a profit of $88 ($10 - $98) overall.

Figure 11-8 Figure 11-8 Shows Cost and Demand Curves for Curves