The following graph shows the demand and cost curves of an imperfectly competitive firm.MC and ATC represent the marginal cost curve and the average cost curve respectively. Figure 8.1
- According to Figure 8.1,what is the firm's profit when it sells quantity Q₁ at price P₁?

Question

The following graph shows the demand and cost curves of an imperfectly competitive firm.MC and ATC represent the marginal cost curve and the average cost curve respectively. Figure 8.1

- According to Figure 8.1,what is the firm's profit when it sells quantity Q₁ at price P₁?

Quizplus · Accepted Answer

The firm's profit at Q₁ is equal to the area of rectangle DCEF, which is (P₁ - ATC) multiplied by Q₁. This is because the firm's total revenue at this quantity is P₁ multiplied by Q₁, and its total cost is ATC multiplied by Q₁. The difference between total revenue and total cost is profit, which is maximized at this quantity. Rectangles ABCD and ABEF represent the firm's total revenue and total cost, but they do not represent profit at this specific quantity. Distance AB and FD are not relevant to determining the firm's profit.

The Following Graph Shows the Demand and Cost Curves of an Imperfectly