Exhibit 10-3

-The profit-maximizing price for the firm in Exhibit 10-3 is

Question

Exhibit 10-3
 
-The profit-maximizing price for the firm in Exhibit 10-3 is

Quizplus · Accepted Answer

To determine the profit-maximizing price, we need to find the point where marginal revenue (MR) equals marginal cost (MC).

Looking at the graph in Exhibit 10-3, we can see that the firm is producing at the point where MC intersects with average revenue (AR), which is at a quantity of 4 units. At this quantity, the firm is charging a price of $27, which is where the demand curve intersects with the average revenue curve.

To find the profit-maximizing price, we need to determine the point where MC intersects with MR. Since the demand curve is a straight line in this example, we know that MR will also be a straight line with the same slope. Therefore, we can find the MR curve by a) finding the slope of the demand curve (which is -3 in this case) and b) shifting it downwards by half the intercept ($45/2, or $22.50).

When we plot the MR curve, we can see that it intersects with MC at a quantity of 2.5 units, which corresponds to a price of $21. This means that the profit-maximizing price for the firm is $21, since this is the point where the firm will make the most profit by producing and selling their product.

Exhibit 10-3 -The Profit-Maximizing Price for the Firm in Exhibit 10-3 Is