Figure 8.5 Figure 8.5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 8.5.If the market price is $20, the firm's profit-maximising output is

Question

Figure 8.5  Figure 8.5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 8.5.If the market price is $20, the firm's profit-maximising output is

Quizplus · Accepted Answer

The profit-maximizing output for a firm in a perfectly competitive market is where MC (marginal cost) equals MR (marginal revenue). In Figure 8.5, this occurs at point E where the MC curve intersects the MR curve. At point E, the firm should produce 1350 units, which corresponds to a market price of $20. At this output level, the firm's average total cost (ATC) is $20 as well, which means that the firm is earning zero economic profit. Producing more or less than 1350 units would cause the firm's economic profit to become negative. Therefore, the best choice is C) 1350 units.

Figure 85 Figure 8