4. Benefit maximization in the cost-curve diagram

Suppose that the market for wind chimes is a competitive market. The following graph mirrors the daily price curves of a firm operating in this market.

You are watching: 4. profit maximization in the cost-curve diagram

Hint: after ~ placing the rectangle ~ above the graph, you can choose an endpoint to check out the works with of the point.

In the short run, in ~ a industry price that $20 every wind chime, this for sure will select to produce

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As number 1 shows, an upward sloping marginal cost (MC) curve is the firm's supply curve. Therefore, in the brief run, in ~ a market price the $20 per wind chimes, this firm will produce 9 devices or 9,000 wind chimes every day.

In figure 1, the shaded area to represent the profit area. That method this rectangle area suggests the firm's economic profit due to the fact that the average total cost (ATC) is much less than the price the the product.

The quantity of profit deserve to be calculated together follows:

$$ \beginaligned \text benefit &=\text full revenue - total cost \\ &=(\text preferably price \times \text quantity )-(\text Minimum price \times \text quantity ) \\ &=(\$ 20 \times 9)-(\$ 16 \times 9) \\ &=\$ 180-\$ 144 \\ &=\$ 36 \endaligned $$

Thus, the profit is 36 or \(\$ 36,000\).


answered by: ReeChick
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price #1

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When the price is $20, the for sure will create at a allude where the price = MC. So, in ~ this level, the for sure will develop 9 units. In ~ this level of output, the ATC ($16) is much less than the price ($20). Thus, the firm is earning a per-unit profit of $4. In ~ Q=9, the certain is earning a full profit that $4 x 9 units = $36.


answered by: pesi
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