For the pizza seller whose marginal, average variable and average total cost curves are shown in the graph below

For the pizza seller whose marginal, average variable and average total cost curves are shown in the graph below, what is the profit-maximizing level of output and how much profit will this producer earn if the price of pizza is $1.00 per slice?

Instructions: In the graph below, label all three curves by clicking on the dropdown to select the appropriate label. Then, indicate the profit-maximizing level of output. Enter your response as a whole number.

At the profit-maximizing level of output, the producer's profit is: $________ per day.

Solutions

Expert Solution

Profit maximization for a perfectly competitive firm in the short run is when P=MC. MC above the shutdown point is the supply curve of the firm. Long-run equilibrium for a perfectly competitive firm is when P=MC=ATC. It will produce at that output where Long run MC=Long run AC.

The profit-maximizing output is MC=ATC which is 425.

When the price of pizza is $1, then 400 pizzas will be sold.

Profit for the firm is (P-ATC) Q

P=$1.00

ATC=$1.25

Q=400 per day.

Profit/Loss= (1.00-1.25)400

=-0.25 x 400

=-$100 (loss) per day.

Rahul Sunny answered 2 years ago

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