Question

Q8 Refer to Figure 12-2. What is the amount of profit if the firm produces Q2 units?

A. It is equal to the vertical distance g to Q2.
B. It is equal to the vertical distance c to g multiplied by Q2 units.
C. It is equal to the vertical distance c to Q2.
D. It is equal to the vertical distance c to g.

Answer 1

Given the data provided, where the rectangles representing total revenue and total cost are the same, the profit at Q2 units would be zero. Thus, none of the answer choices provided correctly describe the profit situation.

Step-by-step explanation:

To determine the profit a firm makes when producing Q2 units, you must consider both total revenue and total cost. Given that total revenue is represented by the area of a rectangle that extends up to the quantity Q2 and up to the price point on the vertical axis, and total cost is shown as a rectangle extending to quantity Q2 but up to the average cost point on the vertical axis, profit would be the area that represents total revenue minus the area representing total cost.

In the provided scenario, as the rectangles for total revenue and total cost are the same, no profit is generated, and the amount of profit at Q2 units is zero. Therefore, if we refer to the options given in your question, none of them correctly describe the profit situation as outlined above since they either refer to a certain vertical distance or a multiplication that does not apply when profits are zero.

Answer 2

The amount of profit if the firm produces Q2 units D. It is equal to the vertical distance c to g.

How to explain

In a graph where profit is depicted as the vertical distance, it signifies the difference between total revenue and total costs at various output levels.

As output increases, total revenue rises but might eventually plateau or increase at a decreasing rate due to diminishing returns. Simultaneously, total costs tend to increase with higher production.

The vertical distance between the total revenue curve and the total cost curve represents profit. Larger vertical distances indicate higher profits, while negative vertical distances indicate losses, depicting the financial performance of a business at different output levels.