The figure given below shows the revenue and cost curves of a perfectly competitive firm.Figure 10.2
MC: Marginal cost curve
MR: Marginal revenue curve
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
-Refer to Figure 10.2. What is the firm's total fixed cost at the profit-maximizing output level?

Question

The figure given below shows the revenue and cost curves of a perfectly competitive firm.Figure 10.2
  MC: Marginal cost curve
MR: Marginal revenue curve
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
-Refer to Figure 10.2. What is the firm's total fixed cost at the profit-maximizing output level?

Quizplus · Accepted Answer

To determine the firm's total fixed cost at the profit-maximizing output level, we need to find the point where MR=MC. From the graph, we can see that the profit-maximizing output level is where MC intersects MR, which is at a quantity of 4. At this quantity, the ATC is $150 and the AVC is $100, which means that the AFC is $50. Therefore, the firm's total fixed cost is AFC x Q = $50 x 4 = $200. However, in the graph, the fixed cost curve intersects the ATC curve at $500. This is the firm's total cost at a quantity of 0. Thus, the answer is $500 - $300 (total variable cost at Q=4) = $200. So, the answer is B.

The Figure Given Below Shows the Revenue and Cost Curves