In: Economics
4. Profit maximization in the cost-curve diagram
Suppose that the market for air fresheners is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. Hint: After placing the rectangle on the graph, you can select an endpoint to see the coordinates of that point.
In the short run, at a market price of $20 per air freshener, this firm will choose to produce _______ air fresheners per day.
On the preceding graph, use the blue rectangle (circle symbols) to shade the area representing the firm's profit or loss if the market price is $20 and the firm chooses to produce the quantity you already selected.
Note: In the following question, enter a positive number, even if it represents a loss.
The area of this rectangle indicates that the firm's _______ would be _______ thousand per day in the short run.
Answer :
At $20 price level in short run the firm will produce 9 thousand air fresheners per day.
In the above picture's diagram the shaded area is the firm's profit area.
Per unit profit = Price - ATC = 20 - 16 = $4
Per day profit = Per unit profit * Quantity = 4 * 9 thousands = 36 thousands.
Therefore, here the rectangle area is the firm's profit of $36 thousand per day in short-run.