Question

Steps to identify profit:

⋅ Use ______ to identify the profit-max quantity
⋅ Draw a _____ at that quantity
⋅ The price where the line hits the demand curve is the ______
⋅ The cost where the line hits the ATC curve is the ______
⋅ The difference between price and average cost is the per unit _____
⋅ Profit is the rectangle with height_____ and length (Q* - 0)

Answer 1

The steps to identify profit are using MR=MC to find the profit-maximizing quantity, drawing a line at that quantity, determining the price where the line intersects the demand curve, calculating the cost where the line intersects the ATC curve, finding the per unit profit by subtracting average cost from price, and finally determining the total profit as the rectangle with height equal to the per unit profit and length equal to (Q* - 0).

Steps to identify profit:

1. Use MR=MC to identify the profit-max quantity
2. Draw a line at that quantity
3. The price where the line hits the demand curve is the profit-maximizing price
4. The cost where the line hits the ATC curve is the average cost
5. The difference between price and average cost is the per unit profit
6. Profit is the rectangle with height equal to the per unit profit and length equal to (Q* - 0)