Question

Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit.

Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal

a.$1,000.

b.$3,000.

c.-$200.

d.$4,000.

Answer 1

solution:

given

certain competitive price-taker firm is producing Q = 1,000 units of output

At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11.

The firm sells its output for $12 per unit.

At Q = 1,000, the firm's profits equal to:

Total Costs = 11*1000 = 11,000

Total Revenue = 12*1000 = 12,000

Profit = 12,000 - 11,000 = $ 1,000

OR

Profit = Q x (P - ATC) = 1,000 x $(12 - 11) = 1,000 x $1 = $1,000

Profit = 12,000 - 11,000 = $ 1,000

answer is option A.

(a) $1,000.