In Figure 17-4, below, initial demand, marginal cost, and marginal revenue curves (none of them shown) caused the firm to produce the profit-maximizing quantity Y 0 at a price of P0. Now the demand and marginal cost curves have moved to those shown, with the marginal revenue curve running through point L.
Figure 17-4
-If the firm in the figure above maintains its set price of P0, its profit is
A) G + H.
B) G + J.
C) F + G + J.
D) G + H + J + K.
E) J + K.

Question

In Figure 17-4, below, initial demand, marginal cost, and marginal revenue curves (none of them shown) caused the firm to produce the profit-maximizing quantity Y 0 at a price of P0. Now the demand and marginal cost curves have moved to those shown, with the marginal revenue curve running through point L.
Figure 17-4 
-If the firm in the figure above maintains its set price of P0, its profit is
A) G + H. 
B) G + J. 
C) F + G + J. 
D) G + H + J + K. 
E) J + K.

Quizplus · Accepted Answer

At the new demand and marginal cost curve, the profit-maximizing quantity is YS2U2B20S2U2B0 and the corresponding price is P1. However, the firm is still charging the old price of P0. At this price, the firm will sell the quantity YS1U1B10S1U1B0, which is less than the profit-maximizing quantity at the new demand and marginal cost curve. This means that the firm is not producing enough to maximize profits. 
To find the profit, we need to compare the total revenue and total cost at the quantity YS1U1B10S1U1B0. The total revenue is given by the rectangle YS1U1P0B0, which has an area of G + J. The total cost is given by the rectangle YS1U1B10, which has an area of G + H. Therefore, the profit is G + J - (G + H) = B.

In Figure 17-4, Below, Initial Demand, Marginal Cost, and Marginal