The figure below displays the short-run marginal cost and short-run average cost curves for a firm

Economics Dec 12, 2020

The figure below displays the short-run marginal cost and short-run average cost curves for a firm. When q = 1 and q = 4, the short-run marginal cost is $4. When q = 4, the short-run average cost is $7. Assume the firm has a fixed cost of $8 and they can sell each unit of output at a price of $4 ( p= 4). What is the profit-maximizing level of output for the firm in the short-run? Profit-maximizing 4 = MC AC 7 4 1 4 9 (Note: if image does not appear above, click here)

Expert Solution

ans. 4

For profit maximisation, MR = MC.
SInce P = 4, it means at maximimum profit, MC = 4. So profit maximising level of output is 7.

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