Figure 13-7 shows short-run cost and demand curves for a monopolistically competitive firm in the footwear market.
-Refer to Figure 13-7.Which of the following is the area that represents the profit or loss experienced by the firm?
A)a loss represented by the rectangle P2uvP1
B)a loss represented by the rectangle P2uwP0
C)a loss represented by the rectangle P1vwP0
D)an accounting profit equal to P1vwP0

Question

Figure 13-7 shows short-run cost and demand curves for a monopolistically competitive firm in the footwear market.
-Refer to Figure 13-7.Which of the following is the area that represents the profit or loss experienced by the firm?
A)a loss represented by the rectangle P2uvP1 
B)a loss represented by the rectangle P2uwP0 
C)a loss represented by the rectangle P1vwP0 
D)an accounting profit equal to P1vwP0

Quizplus · Accepted Answer

The area that represents the profit or loss experienced by the firm is a loss represented by the rectangle P2uvP1. This is because the rectangle represents the difference between the total revenue (P2uv) and the total cost (P1uv). If the total revenue is greater than the total cost, then the firm will make a profit. If the total cost is greater than the total revenue, then the firm will make a loss.

Figure 13-7 Shows Short-Run Cost and Demand Curves for a Monopolistically