a. What are the profit-maximizing price and quantity? b. At the profit-maximizing price and quantity, what are the total profits or losses made by this firm?
a. What are the profit-maximizing price and quantity? b. At the profit-maximizing price and quantity, what are the total profits or losses made by this firm?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:In the provided graph, we have various economic curves plotted on a Price vs. Quantity chart. Here's a detailed explanation of the graph:
### Graph Explanation:
- **Curves:**
- **Demand (D):** This is a downward-sloping curve from left to right.
- **Marginal Cost (MC):** This curve is upward-sloping, intersecting at the point where profit maximization occurs.
- **Average Total Cost (ATC):** U-shaped curve that intersects the MC at the lowest point.
- **Marginal Revenue (MR):** Downward-sloping line which is typically below the Demand curve in a monopolistic market.
- **Axes:**
- **Vertical Axis (Price):** Ranges from $3 to $11 with labels at $3, $5, $8, and $11.
- **Horizontal Axis (Quantity):** Ranges from 0 to beyond 300 with labels at 200 and 300 units.
### Intersection Points:
- The intersection of the MC and MR curves indicates the profit-maximizing quantity.
- From this intersection, a vertical line down to the Quantity axis reflects the optimal quantity (200 units).
- A horizontal line to the Price axis reflects the profit-maximizing price (approximately $5).
### Questions:
a. **What are the profit-maximizing price and quantity?**
- Profit-maximizing price: $5
- Profit-maximizing quantity: 200 units
b. **At the profit-maximizing price and quantity, what are the total profits or losses made by this firm?**
- To find total profits or losses, calculate the area between the price and ATC at the profit-maximizing quantity, multiplied by the quantity produced. At $200, the ATC is slightly above the price line, suggesting the firm is at a break-even point or incurs a small loss.
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