Please answer both parts A and B **Understanding Profit Maximization in Competitive Firms**The graph shown illustrates a single competitive firm's pricing and output strategy for maximizing profits, given its production costs.**Graph Explanation:**- The graph has two key curves: the **Marginal Cost (MC)** curve and the **Marginal Revenue (MR)** line.- The x-axis represents output (units), while the y-axis represents price and cost ($).- The MC curve is U-shaped, starting at approximately $200, decreasing initially, reaching a minimum, and then rising sharply.- The MR line is horizontal, reflecting constant marginal revenue at around $500.**Questions and Analysis:****a. What is the profit-maximizing rule for this firm?**A profit-maximizing firm will:- [ ] Maximize profits at any output for which the marginal cost curve is below marginal revenue.- [ ] Raise prices to the highest point on the marginal cost curve.- [x] Produce a level of output such that marginal revenue equals marginal cost.- [ ] Produce a level of output such that marginal revenue exceeds marginal cost.**b. At which level of output will this firm maximize profits?**In a competitive market, a firm maximizes profits where its **Marginal Cost** equals its **Marginal Revenue**. Based on the intersection point in the graph, this occurs at an output level corresponding to the MR line intersecting the rising MC curve.**Output: 7 units**This analysis helps firms understand the optimal point for production to ensure the highest level of profitability.

The perfectly competitive market decides the price and individual firm does not have control over…

Consider the graph, which depicts a single competitive firm hat wishes to maximize profits given its costs of production. 1. What is the profit-maximizing rule for this firm? A profit-maximizing firm will

Consider the graph, which depicts a single competitive firm hat wishes to maximize profits given its costs of production. 1. What is the profit-maximizing rule for this firm? A profit-maximizing firm will

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Please answer both parts A and B

**Understanding Profit Maximization in Competitive Firms**

The graph shown illustrates a single competitive firm's pricing and output strategy for maximizing profits, given its production costs.

**Graph Explanation:**

- The graph has two key curves: the **Marginal Cost (MC)** curve and the **Marginal Revenue (MR)** line.
- The x-axis represents output (units), while the y-axis represents price and cost ($).
- The MC curve is U-shaped, starting at approximately $200, decreasing initially, reaching a minimum, and then rising sharply.
- The MR line is horizontal, reflecting constant marginal revenue at around $500.

**Questions and Analysis:**

**a. What is the profit-maximizing rule for this firm?**

A profit-maximizing firm will:

- [ ] Maximize profits at any output for which the marginal cost curve is below marginal revenue.
- [ ] Raise prices to the highest point on the marginal cost curve.
- [x] Produce a level of output such that marginal revenue equals marginal cost.
- [ ] Produce a level of output such that marginal revenue exceeds marginal cost.

**b. At which level of output will this firm maximize profits?**

In a competitive market, a firm maximizes profits where its **Marginal Cost** equals its **Marginal Revenue**. Based on the intersection point in the graph, this occurs at an output level corresponding to the MR line intersecting the rising MC curve.

**Output: 7 units**

This analysis helps firms understand the optimal point for production to ensure the highest level of profitability.

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