Figure 10.5 -Refer to Figure 10.5.The chocolate store represented in the diagram is currently selling Q_a units of candy at a price of P_a.Is this candy store maximising its profit and if it is not, what would you recommend to the firm? A)Yes, it is maximising its profit by charging the highest price possible. B)No, it is not; since its marginal cost is constant, it should produce and sell as much chocolate as it can.It should sell Q_d units at a price of P_d. C)No, it is not; it should lower its price to P_c and sell Q_c units. D)No, it is not; it should lower its price to P_b and sell Q_b units.

Question

Quizplus · Accepted Answer

The candy store is not maximizing its profit, as it can sell more candy at a lower price. The optimal price and quantity combination is where the marginal cost and marginal revenue intersect. Looking at the diagram, this occurs at point E, where the price is P_b and the quantity sold is Q_b. Thus, the candy store should lower its price to P_b and sell Q_b units to maximize its profit.

Figure 10.5 -Refer to Figure 10.5.The Chocolate Store Represented in the Diagram