The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.2
MC: Marginal cost curve
MR: Marginal revenue curve
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
-Refer to Figure 9.2.What is the profit-maximizing price and output level?

Question

The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.2  
MC: Marginal cost curve
MR: Marginal revenue curve
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
-Refer to Figure 9.2.What is the profit-maximizing price and output level?

Quizplus · Accepted Answer

The profit maximizing level of output is where MR=MC. In this case, that occurs at a quantity of 20 units. At that level of output, the corresponding price is $50 (as read off the demand curve). The firm's average total cost (ATC) at that level of output is approximately $30. Since we know the price ($50) and the ATC ($30), we can calculate the firm's profit per unit as $20. Thus, the firm's total profit at the profit-maximizing level of output is 
$20 per unit x 20 units = $400. Any other output level would result in a lower level of profit. Therefore, the best choice is C: $50 and 20 units.

The Figure Given Below Shows the Revenue and Cost Curves