Question

Figure below shows the cost structure of a firm in a perfectly competitive market. If the market price is $40 and the firm is currently producing the profit maximizing output level, the firm's profit is

Answer 1

In perfectly competitive market, 

P = MC

So, if P = 40 

Then, MC = 40.

If MC = 40

 

Then, Q = 900 (vertical line from the point where MC = 40)

If, Q = 900, AVC = 30

 

Then, TC = AVC * Q

Or, TC = 30 * 900

Or, TC = 27000

 

And, TR = P * Q

Or, TR = 40 * 900

Or, TR = 36000

 

So, the firm's profit is, 

Profit = TR - TC

Or, Profit = 36000 - 27000

Or, Profit = 9000

 

So, the firm's profit is 9000.

So, the firm's profit is 9000.