Figure 13-6
Suppose a firm operating in a competitive market has the following cost curves:
-Refer to Figure 13-6.When market price is P3,a profit-maximizing firm's total costs

Question

Figure 13-6
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 13-6.When market price is P3,a profit-maximizing firm's total costs

Quizplus · Accepted Answer

At the profit-maximizing output level, MC=MR. In the given cost curves, at output Q2, MC=P3. Therefore, the firm will produce Q2 and the total costs will be represented by the area P3 F1F1F1S1F1F1F10 Q2. This is because the firm's supply curve (portion of MC curve above AVC) intersects with the market demand curve at price P3, so the firm can cover all its costs and make positive economic profits represented by the shaded rectangle.

Figure 13-6 Suppose a Firm Operating in a Competitive Market Has the Has