Figure 16-2. The figure is drawn for a monopolistically competitive firm.
-Refer to Figure 16-2. Suppose that average total cost is $36 when Q=24. What is the profit-maximizing price and resulting profit?

Question

Figure 16-2. The figure is drawn for a monopolistically competitive firm. 
-Refer to Figure 16-2. Suppose that average total cost is $36 when Q=24. What is the profit-maximizing price and resulting profit?

Quizplus · Accepted Answer

To maximize profit, the firm will produce where marginal revenue equals marginal cost, which is at Q=30 in this case. At Q=30, the average total cost is $34, so the profit-maximizing price is $36 (where demand intersects with the marginal revenue curve).

Profit = (price - average total cost) x quantity
Profit = ($36 - $34) x 30
Profit = $60 x 3
Profit = $180
Therefore, the profit-maximizing price and resulting profit is P=$36, profit=$144.