The above graph shows the demand and cost conditions facing a price-setting firm. What is the maximum amount of profit the firm can earn?

Question

Quizplus · Accepted Answer

The maximum amount of profit a firm can earn is where marginal revenue equals marginal cost. This occurs at point F1 for this graph. At that point, the price is $200 and the quantity is 3. Therefore, the total revenue is $600, and the total cost is $520 (comprised of fixed costs of $200 and variable costs of $320). Thus, the maximum profit is $80 (total revenue - total cost).

The Above Graph Shows the Demand and Cost Conditions Facing