Question

Profit maximization in the cost-curve dingram The following graph plots daily cost curves for a firm operating in the competitive market for jumpsuits. Hint: Once you hawe positioned the rectangle on the graph, select a point to observe its coordinates. In the short nun, given a market price equal to

$15
per jumpsuit, the firm should produce a daily quantity of On the preceding graph, use the blue rectangle (circle symbois) to fit in the area that represents proft or lass of the firm given the market price of
$15
and the quantity of production from your previous answer. Note: In the following question, enter a positive number regardless of whether the firm earns a profit or incurs a loss. The rectanguar area represents a short-run thousand per day for the frrm.

Answer 1

A competitive firm maximizes profits by determining the quantity of production that maximizes the difference between total revenue and total costs. In this example, at a quantity of 40 and a market price of $15, the firm calculates total revenue versus total costs, with profit being the shaded area above the average cost and below the market price on a graph.

Step-by-step explanation:

When a competitive firm operates in the market, it aims to maximize profits by determining the optimal quantity to produce based on market price. In this scenario, the market price for jumpsuits is given as $15. Using the provided cost curves, the firm can calculate total revenue and total costs to find the level of output that maximizes profits.

For example, if a firm produces 40 jumpsuits at a price of $16, it would accrue a total revenue of $640 (40 jumpsuits x $16 per jumpsuit). If the firm's total costs are $580 at this quantity, profits would be the difference, which is $60. The graphical representation of this would show a rectangle representing total revenue at the price of $16 on the vertical axis and quantity on the horizontal axis. The total costs would be a lighter shaded rectangle also at the quantity of 40 but with a height equal to the average cost of $14.50. The area above the average cost curve and below the price line represents the firm's economies profits.

A similar analysis applies if the market price is set at $15. The firm would adjust the rectangle to reflect the new price level, calculate the new total revenue, compare it with total costs, and determine the profit or loss, visualizing it as the shaded area above average cost and below the price of $15. Various factors, such as barriers to entry and market structure (competitive market vs. monopoly), can affect the firm's ability to maintain profits in the long run.