Figure 13-5
-Refer to Figure 13-5.The candy store represented in the diagram is currently selling Qa units of candy at a price of Pa.Is this candy store maximizing its profit and if it is not,what would you recommend to the firm?
A)Yes,it is maximizing its profit by charging the highest price possible.
B)No,it is not;since its marginal cost is constant,it should produce and sell as much candy as it can.It should sell Qd units at a price of Pd.
C)No,it is not;it should lower its price to Pc and sell Qc units.
D)No,it is not;it should lower its price to Pb and sell Qb units.

Question

Figure 13-5 
-Refer to Figure 13-5.The candy store represented in the diagram is currently selling Qa units of candy at a price of Pa.Is this candy store maximizing its profit and if it is not,what would you recommend to the firm?
A)Yes,it is maximizing its profit by charging the highest price possible. 
B)No,it is not;since its marginal cost is constant,it should produce and sell as much candy as it can.It should sell Qd units at a price of Pd. 
C)No,it is not;it should lower its price to Pc and sell Qc units. 
D)No,it is not;it should lower its price to Pb and sell Qb units.

Quizplus · Accepted Answer

The candy store is not maximizing its profit at the current price and quantity level (point A on the graph) since its marginal cost is constant. Therefore, it should produce and sell more candy until its marginal cost equals the price. The profit-maximizing output level occurs where marginal cost equals marginal revenue (point B on the graph). At this point, the price (Pb) and quantity (Qb) combination would result in the highest profit for the firm. Therefore, the candy store should lower its price to Pb and sell Qb units.

Figure 13-5 -Refer to Figure 13-5.The Candy Store Represented in the Diagram