Figure 7-4 Figure 7-4 shows the cost and demand curves for a profit-maximising firm in a perfectly competitive market.
-Refer to Figure 7-4.If the market price is $30,the firm's profit-maximising output level is
A) 0.
B) 130.
C) 180.
D) 240.

Question

Figure 7-4  Figure 7-4 shows the cost and demand curves for a profit-maximising firm in a perfectly competitive market.
-Refer to Figure 7-4.If the market price is $30,the firm's profit-maximising output level is
A) 0. 
B) 130. 
C) 180. 
D) 240.

Quizplus · Accepted Answer

At the market price of $30, the firm's profit-maximizing output level is where its marginal cost curve intersects with the price line, which is at a quantity of 180 units of output. At this output level, the firm's profit is maximized because the marginal cost equals the market price, which is greater than the average variable cost. Therefore, the firm is able to cover its variable and fixed costs and earn positive economic profits. At any outputs lower or higher than 180, the firm's profit will be lower or negative.

Figure 7-4 Figure 7-4 Shows the Cost and Demand