Figure 12-4

Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.
-Refer to Figure 12-4.If the market price is $30, the firm's profit-maximizing output level is

Question

Figure 12-4
  
Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.
-Refer to Figure 12-4.If the market price is $30, the firm's profit-maximizing output level is

Quizplus · Accepted Answer

At a market price of $30, the firm's profit-maximizing output level occurs where the marginal cost curve intersects the marginal revenue curve, which is at output level 180. At this output level, the firm's total revenue is $5,400 (=180*$30), and its total costs are $4,500 (=150 + 180 + 90*3). Therefore, its profit is $900 (=5,400 - 4,500). At any other output level, the firm's profit will be lower. For example, if it produces 240 units (which would be its production level if the market price were $20), its total costs would be $5,100 (=150 + 240 + 90*3), and its total revenue would be $4,800 (=240*$20), resulting in a profit of only $700 (=4,800 - 5,100).

Figure 12-4 Figure 12-4 Shows the Cost and Demand Curves for a and Demand