Question

Microeconomics

Posted 5 months ago

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This graph shows the cost curves and marginal revenue curves for a firm.
in thousands
How much is this firm's profit?
Choose 1 answer:
(A) $-\$ 135,000$
(B) $\$ 950,000$
(c) $\$ 400,000$
(D) $\$ 360,000$
(E) $\$ 450,000$
```

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Answer from Sia

Posted 5 months ago

Solution

a

Identify the profit-maximizing quantity: The profit-maximizing quantity is where the Marginal Cost (MC) curve intersects the Marginal Revenue (MR) curve. From the graph, this occurs at a quantity of 8,000 units

b

Determine the price at the profit-maximizing quantity: The price is given by the Demand (D) = MR curve at the quantity of 8,000 units. From the graph, this price is $75

c

Calculate Total Revenue (TR): Total Revenue is calculated as $TR = P \times Q$. Here, $P = 75$ and $Q = 8,000$. Therefore, $TR = 75 \times 8,000 = 600,000$

d

Determine the Average Total Cost (ATC) at the profit-maximizing quantity: From the graph, the ATC at 8,000 units is approximately $55

e

Calculate Total Cost (TC): Total Cost is calculated as $TC = ATC \times Q$. Here, $ATC = 55$ and $Q = 8,000$. Therefore, $TC = 55 \times 8,000 = 440,000$

f

Calculate Profit: Profit is calculated as $Profit = TR - TC$. Here, $TR = 600,000$ and $TC = 440,000$. Therefore, $Profit = 600,000 - 440,000 = 160,000$

Answer

$160,000$

Key Concept

Profit Maximization

Explanation

The profit-maximizing quantity is where the MC curve intersects the MR curve. At this quantity, the price is determined by the demand curve. Total Revenue is calculated by multiplying this price by the quantity, and Total Cost is calculated by multiplying the ATC by the quantity. The difference between Total Revenue and Total Cost gives the profit.

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