Figure 14-4
-Refer to Figure 14-4.When market price is P7,a profit-maximizing firm's short-run profits can be represented by the area

Question

Figure 14-4 
-Refer to Figure 14-4.When market price is P7,a profit-maximizing firm's short-run profits can be represented by the area

Quizplus · Accepted Answer

At P7, the firm will produce Q3 units as that is where marginal cost (MC) intersects with marginal revenue (MR). The firm's total revenue at this level of output can be calculated as P7Q3. The total cost of producing Q3 units can be calculated as the area under the marginal cost curve from 0 to Q3, which is represented by the rectangle with sides Q3 and (P7 - P5). Thus, the firm's profit at P7 can be calculated as the difference between total revenue and total cost, which is (P7 - P5)Q3.

Figure 14-4 -Refer to Figure 14-4.When Market Price Is P7,a Profit-Maximizing Firm's