Question

At the profit-maximizing level of output, this firm ___. rev: 05_15_2018 Multiple Choice generates an economic profit equal to the area of ABED faces a total fixed cost equal to the area of BEFC should shut down generates a loss per unit equal to DE

Answer 1

At the profit-maximizing level of output, a firm earns an economic profit equal to the area of ABED and produces where marginal revenue equals marginal cost. A firm facing a total fixed cost equal to the area of BEFC is not producing at the profit-maximizing level and may have lower or negative profits.

Step-by-step explanation:

At the profit-maximizing level of output, a firm earns an economic profit equal to the area of ABED on the graph provided. This signifies that the firm is making profits above its total costs, including both fixed and variable costs. It is important to note that a profit-maximizing firm will produce at a quantity where marginal revenue (MR) equals marginal cost (MC).

If a firm is facing a total fixed cost equal to the area of BEFC, it means that it is not producing at the profit-maximizing level of output. In this case, the firm is incurring higher fixed costs than necessary, which could result in lower or negative profits.