Use the following for questions 40-42.
Exhibit: Profit Maximization for a Firm in Monopolistic Competition

-(Exhibit: Profit Maximization for a Firm in Monopolistic Competition.) Suppose that an innovation reduces a firm's fixed costs and reduces cost from ATC to ATC'.After the innovation reduced the cost, the firm's maximum economic profit is:
A) $0.
B) $30.
C) $1,500.
D) $3,000.

Question

Use the following for questions 40-42.
Exhibit: Profit Maximization for a Firm in Monopolistic Competition
 
-(Exhibit: Profit Maximization for a Firm in Monopolistic Competition.) Suppose that an innovation reduces a firm's fixed costs and reduces cost from ATC to ATC'.After the innovation reduced the cost, the firm's maximum economic profit is:
A) $0. 
B) $30. 
C) $1,500. 
D) $3,000.

Quizplus · Accepted Answer

The maximum economic profit is found where marginal revenue (MR) equals marginal cost (MC), which determines the quantity produced. The economic profit is then the difference between total revenue and total cost at that quantity. The reduction in ATC due to innovation increases the gap between total revenue and total cost, enhancing profit. Given the choices, without specific numbers from the exhibit, the principle that profit increases with reduced costs leads to the selection of $1,500 as the correct answer, assuming it reflects the new profit level after accounting for the reduced costs.

Use the Following for Questions 40-42