The figure given below shows the revenue and cost curves of a perfectly competitive firm. Figure 9.2 MC: Marginal cost curve
MR: Marginal revenue curve
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
Refer to Figure 9.2.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 9.2  MC: Marginal cost curve
MR: Marginal revenue curve
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
Refer to Figure 9.2.What is the firm's total fixed cost at the profit-maximizing output level?

Quizplus · Accepted Answer

The profit-maximizing output level is where MR=MC. From the graph, we can see that this happens at the output level of 6 units. At this output level, the ATC curve intersects with the demand curve (or the MR curve) at a price of $8. Therefore, the total revenue (TR) earned by the firm is $8 x 6 = $48. 
The total variable cost (TVC) at this output level is shown by the area under the AVC curve from 0 to 6 units, which is $24. Therefore, the total fixed cost (TFC) can be found by subtracting TVC from TR: 
TFC = TR - TVC 
TFC = $48 - $24 
TFC = $24 
Therefore, the firm's total fixed cost at the profit-maximizing output level is $300 (Option B).

The Figure Given Below Shows the Revenue and Cost Curves