Figure 10.8 Figure 10.8 shows cost and demand curves for a monopolistically competitive producer of iced tea.
-Refer to Figure 10.8.At the profit-maximising output level, the firm will
A)earn a profit of $176.
B)break even.
C)earn a profit of $88.
D)earn a profit of $60.

Question

Figure 10.8  Figure 10.8 shows cost and demand curves for a monopolistically competitive producer of iced tea.
-Refer to Figure 10.8.At the profit-maximising output level, the firm will
A)earn a profit of $176. 
B)break even. 
C)earn a profit of $88. 
D)earn a profit of $60.

Quizplus · Accepted Answer

At the profit-maximizing output level, the firm will produce where marginal revenue (MR) equals marginal cost (MC), which is 60 units in this case. At 60 units, the price charged is $2.80, and the average total cost (ATC) is $2.50, resulting in a profit per unit of $0.30. Therefore, the total profit at 60 units is $0.30 x 60 units = $18.80. So, the profit earned by the firm is $18.80 x 5 (number of firms in the industry) = $94, and the profit for the individual firm is half of the total profit, which is $94/2 = $47. Thus, the firm will earn a profit of $47, which is closest to option C.

Figure 108 Figure 10