how much profit does this firm earn at the profit - maximizing value of output? (dont forget the thousands.)
how much profit does this firm earn at the profit - maximizing value of output? (dont forget the thousands.)
Answer
Explanation:
Step1: Identify profit - maximizing output
The firm maximizes profit where $MC = Price$. From the graph, when $MC = Price$ (the horizontal price line intersects the $MC$ curve), the output level $Q$ is 120,000 cans.
Step2: Find average cost at profit - maximizing output
At $Q = 120,000$ cans, the average cost $AC$ is approximately 4 per can (read from the $AC$ curve at $Q = 120$ on the x - axis).
Step3: Calculate total revenue
Total revenue $TR=Price\times Q$. The price per can is 6, and $Q = 120000$. So, $TR = 6\times120000=720000$.
Step4: Calculate total cost
Total cost $TC = AC\times Q$. $AC = 4$ and $Q = 120000$. So, $TC=4\times120000 = 480000$.
Step5: Calculate profit
Profit $\pi=TR - TC$. $\pi=720000 - 480000=240000$.
Answer:
240000