Answer: $3,000 Profit
Step-by-step explanation:
I have attached the graph that is needed to explain the question.
Since this is a Perfect Competition, profit is maximised at the point where P = MR = MC.
In the absence of MR, P = MC.
So profit is maximised at the point where Price is equal to Marginal Cost.
That point on the graph is 500 units.
You can also see that at that point, Price is higher than the Total Cost which means a profit is being made.
Calculating the profit therefore will be a matter of subtracting cost from revenue.
As you see on the graph, the Price at P= MC is $40 and that is where Sarah Mat will sell at. The cost at the same unit of production is 34.
Profit therefore would be,
= Total Revenue - Total Cost
= (40 * 500) - (34 * 500)
= 20,000 - 17,000
= $3,000
Sarah Mat's profit will be $3,000.
Perfect Competition Characteristics.
1. Firms are Price Takers meaning they sell at the rate that the market determines. This is why Sarah Mat had no choice but to accept the price at $40.
2. Profit is maximised at P = MR = MC
3. The reason that the firm's are price takers is due to the presence of many sellers and buyers in the market as there are no Barriers to entry or exit.