The first drop down options: 6,000 , 8,000 , 9,000 , 12,000 The second drop down

Question

The first drop down options: 6,000 , 8,000 , 9,000 , 12,000

The second drop down options: profit OR economic loss

Suppose that the market for candles is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. Hint: After placing the rectangle on the graph, you can select an endpoint to see the coordinates of that point. 40 36 32 28t 24 20 16 12 Profit or LOSS AVC 0 2 4 68 10 12 14 16 18 20 QUANTITY (Thousands of candles) In the short run, at a market price of $20 per candle, this firm will choose to produce candles per day. On the preceding graph, use the blue rectangle (circle symbols) to shade the area representing the firm's profit or loss if the market price is $20 and the firm chooses to produce the quantity you already selected.

Explanation / Answer

At a market price of $20, the firm will produce 9000 units, since that is where the price = marginal cost

1) 9000 candles per day

When the firm produces 9000 candles at a price of $20, the total revenue = 9000*20 = $180000

Average total cost when the firm produces 9000 candles per day is $16. Total cost = 9000*16 = $144000

Profit per day = $36000

The area of the rectangle indicates that the firms PROFIT will be $36000 per day

For a firm's supply uncer perfect competition, a firm will maximize profits when it produces at that level where Marginal cost = price MC = P

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