Chapter 11R, Problem 3FRQ

a)

To determine

The graph that shows a profit-maximizing price and quantity by labeling P_m and Q_m and shaded area of the total cost.

Explanation of Solution

1. The following graph shows a profit-maximizing price and quantity by labeling $P_m$ and $O_m$

  

In this graph, the horizontal axis represents the quantity and the vertical axis shows the price.

The area above MR is the profit and at the point labeled by P_m is the profit-maximizing price. At the level of profit-maximizing price, the profit-maximizing quantity is labeled as Q_m on the horizontal axis. MR and demand curve would slope downward.

The average total cost curve is in a U-shape, which is labeled by ATC on the graph. Moreover, the quantity is determined on the graph where marginal cost and marginal revenue are equal (MC = MR).

At the level of output where profits are maximized, the average total cost falls to its lowest point.

2. The following graph shows the shaded area of total cost:

  

In this graph, the horizontal axis represents the quantity and the vertical axis shows the price.

The area below the MR is the total cost area which is shaded on the graph.

Economics Concept Introduction

Introduction: The market structure can be determined by a number of factors such as the number of buyers, sellers, competition, and barriers or freedom to enter or exit. Profit maximization is the situation where a firm earns maximum profit in the market.

b)

To determine

The labeling of point A on the graph to show the left of the inelastic portion of the demand curve.

Explanation of Solution

The following graph shows the labeling of point A to show the left of the inelastic portion of the demand curve.

  

In this graph, the horizontal axis represents the quantity and the vertical axis shows the price.

The area above MR is the profit and the area below the MR is the total cost area where the point labeled by P_m is the profit-maximizing price. At the level of profit-maximizing price, the profit-maximizing quantity is labeled as Q_m on the horizontal axis.

The demand curve slopes downward and the demand curve shows inelasticity of demand at the point of A on the graph where the price is low but the demand is high.

Economics Concept Introduction

Introduction: The market structure can be determined by a number of factors such as the number of buyers, sellers, competition, and barriers or freedom to enter or exit. Profit maximization is the situation where a firm earns maximum profit in the market.