In the above graph, industry profits are maximized A)only at point Q^M₁. B)only at point Q^M₂. C)on the line segment joining points Q^M₁ and Q^M₂. D)at the point where r₁ = r₂.

Question

Quizplus · Accepted Answer

Industry profits are maximized on the line segment joining points Q^M₁ and Q^M₂ because this is the range where marginal revenue (MR) equals marginal cost (MC). At point U1, the slope of MR curve is equal to the slope of MC curve. The profit-maximizing output level corresponds to the point where the two curves intersect, which is within the range of Q^M₁ and Q^M₂. Outside this range, either MR > MC or MC > MR, which means that the industry is either producing too much or too little, resulting in lower profits. The answer is not A or B because those points are only the points where either MR or MC is equal to price, not necessarily where MR = MC. The answer is not D because the question is about a range of output levels, not a single point.

In the Above Graph, Industry Profits Are Maximized