Figure 7.3:
-In Figure 7.3,if this industry is competitive,the profit-maximizing level of output is:
A) 3 units.
B) 4 units.
C) 5 units.
D) 6 units.

Question

Figure 7.3: 
-In Figure 7.3,if this industry is competitive,the profit-maximizing level of output is:
A) 3 units. 
B) 4 units. 
C) 5 units. 
D) 6 units.

Quizplus · Accepted Answer

The profit-maximizing level of output for a competitive industry is where marginal cost (MC) equals marginal revenue (MR). From the graph, we can see that the MC curve intersects with the MR curve at the quantity of 5 units. Therefore, the profit-maximizing level of output is 5 units. At this level, the firm's total revenue is equal to the area of the rectangle with height P and width 5, which is shown as the shaded area in the graph. The total cost is equal to the area of the rectangle with height MC(=ATC) and width 5, which is shown as the dashed rectangle in the graph. The profit is equal to the difference between total revenue and total cost, which is the shaded area minus the dashed rectangle, and is maximized at the quantity of 5 units.

Figure 7.3: -In Figure 7.3,if This Industry Is Competitive,the Profit-Maximizing Level of Profit-Maximizing