Figure 8.13 refers to a perfectly competitive firm.

-Refer to Figure 8.13 to answer this question.If the price of the product is $70,what is the profit-maximizing output,and what is the amount of economic profits?

Question

Figure 8.13 refers to a perfectly competitive firm.
 
-Refer to Figure 8.13 to answer this question.If the price of the product is $70,what is the profit-maximizing output,and what is the amount of economic profits?

Quizplus · Accepted Answer

The profit-maximizing output is the point where the marginal cost equals the price, which is at output level 9 in this figure. At this output level, the firm earns economic profits equal to the rectangle that is bounded by the vertical distance between the average total cost curve and the price ($70) and the horizontal distance of the output level (9 units). This rectangle has a height of $10 (average total cost - price) and a width of 9 units, so the economic profit is $90 ($10 x 9 units).

Figure 8.13 Refers to a Perfectly Competitive Firm