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 firm's total fixed cost at the profit-maximizing 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 firm's total fixed cost at the profit-maximizing output level?

Quizplus · Accepted Answer

At the profit-maximizing output level, the firm produces where MC=MR. This occurs at an output level of 5 units, where the price is $80. The ATC at this output level is $70, so the profit per unit is $10. The total revenue at 5 units is $400, so the total cost must be $300 ($400 in revenue - $100 in costs). Since the AFC is $100 at all output levels, the total fixed cost is also $100 more than the total variable cost, which is $200 at the profit-maximizing output level. Therefore, the total fixed cost is $300 - $200 = $100.

The Figure Given Below Shows the Revenue and Cost Curves