FIGURE 9-1
-Refer to Figure 9-1.The diagram shows cost curves for a perfectly competitive firm.If the market price is P₄,the profit-maximizing firm in the short run should produce output

Question

FIGURE 9-1 -Refer to Figure 9-1.The diagram shows cost curves for a perfectly competitive firm.If the market price is P₄,the profit-maximizing firm in the short run should produce output

Quizplus · Accepted Answer

To find the profit-maximizing output level, we need to look at where Marginal Cost (MC) intersects with Marginal Revenue (MR). This occurs at point C in the diagram. At this output level, the firm will produce Q1 units and charge a price of P1. The cost of producing Q1 units is given by the point where the MC curve intersects with the average variable cost (AVC) curve, which is at point F. Since the market price of P1 is above the AVC, but below the average total cost (ATC) at point C, the firm will earn a positive profit in the short run. Thus, the best choice for the profit-maximizing firm in the short run is to produce output level C.

FIGURE 9-1 -Refer to Figure 9-1.The Diagram Shows Cost Curves for a for a Perfectly