Figure 14-6
Suppose a firm operating in a competitive market has the following cost curves:
-Refer to Figure 14-6. When market price is P3, a profit-maximizing firm's total revenue
A)can be represented by the area P3 × Q3.
B)can be represented by the area P3 × Q2.
C)can be represented by the area (P3-P2) × Q3.
D)is zero.

Question

Figure 14-6
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-6. When market price is P3, a profit-maximizing firm's total revenue
A)can be represented by the area P3 × Q3. 
B)can be represented by the area P3 × Q2. 
C)can be represented by the area (P3-P2) × Q3. 
D)is zero.

Quizplus · Accepted Answer

At P3, the profit-maximizing quantity is Q2, where marginal cost (MC) intersects with marginal revenue (MR). The total revenue at this quantity is represented by the area P3 × Q2 because the price is constant in a perfectly competitive market. To find the profit, we need to subtract total cost (represented by the area below MC curve and above the x-axis) from total revenue, which gives us a positive profit in this scenario.

Figure 14-6 Suppose a Firm Operating in a Competitive Market Has the Has