Figure 9.8 Figure 9.8 shows cost and demand curves for a monopolistically competitive producer of iced tea.
-Refer to Figure 9.8.At the profit-maximising output level,the firm will _______.

Question

Figure 9.8  Figure 9.8 shows cost and demand curves for a monopolistically competitive producer of iced tea.
-Refer to Figure 9.8.At the profit-maximising output level,the firm will _______.

Quizplus · Accepted Answer

At the profit-maximizing output level, the firm will produce 200 units and charge a price of $4 per unit. At this output level, the firm's marginal cost and marginal revenue are equal, resulting in a profit of ($4 - $2) x 200 = $400. However, the firm incurs a cost of ($4 - $2.75) x 200 = $150 for advertising, resulting in a profit of $400 - $150 = $250. Therefore, the firm will earn a profit of $250, which corresponds to option C.

Figure 98 Figure 9