Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves:
-Refer to Figure 14-5. When market price is P7, a profit-maximizing firm's short-run profits can be represented by the area
A)P7 × Q5.
B)P7 × Q3.
C)(P7 - P5) × Q3.
D)We are unable to determine the firm's profits because the quantity that the firm would produce is not labeled on the graph.

Question

Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-5. When market price is P7, a profit-maximizing firm's short-run profits can be represented by the area
A)P7 × Q5. 
B)P7 × Q3. 
C)(P7 - P5) × Q3. 
D)We are unable to determine the firm's profits because the quantity that the firm would produce is not labeled on the graph.

Quizplus · Accepted Answer

At P7, the firm will produce Q3 where its marginal cost equals the market price. The firm's short-run profit will be equal to (P7 - P5) × Q3, which is represented by the shaded area in the graph. Therefore, the correct answer is C.

Figure 14-5 Suppose a Firm Operating in a Competitive Market Has the Has