Asked by Sylvester Ambrose on Jul 05, 2024
Verified
Refer to Figure 14-3. 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.
Short-Run Profits
Earnings that a company makes over a short period of time, not taking into consideration the full costs of production in the long term.
Profit-Maximizing
A strategy or process by which a business aims to achieve the highest possible profits from its operations.
Market Price
The contemporary pricing at which a commodity or service is offered for exchange in the open market.
- Comprehend the concept and calculation of short-run profits and losses in competitive markets.
Verified Answer
KD
Konner DeedsJul 09, 2024
Final Answer :
C
Explanation :
In the short run, a profit-maximizing firm's profits are calculated by the difference between the market price and the average total cost (ATC) at the profit-maximizing output level, multiplied by the quantity produced. Choice C correctly represents this calculation as the area between the market price (P7) and the ATC at the profit-maximizing output (P5), across the quantity produced (Q3).
Learning Objectives
- Comprehend the concept and calculation of short-run profits and losses in competitive markets.