Chapter 59, Problem 3MCQ

To determine

The profit of the firm.

Answer to Problem 3MCQ

(b) Profit equals to $250.

Explanation of Solution

A firm’s profit is calculated by

Profit = TR - TC

Where TR is total revenue and TC is total costs.

Total revenue is

TR = P × Q .

Here in the diagram, at the profit-maximizing level, P=$20 and Q=50

TR = $20 × 50.

= $1000.

Similarly, the total cost will be

TR = ATC × Q .

In the diagram, ATC = $15 and Q= 50 Hence, TC = $15 × 50.

= $750.

Profit = TR-TC

= $1000-$750.

= $250.

Also, profit can be calculated in another way,

Profit = (P-ATC) × Q Profit = ($20-15) × 50

= 5× 50

=$250.

Hence option (b) is the correct option.

Option (a), (c), (d), and option (e) are incorrect. Profit is calculated by subtracting total cost from total revenue or multiplying the difference between price and ATC to quantity sold. The firm is making a profit of $250 which is denoted by option (b).

Economics Concept Introduction

Introduction:

The profit of a firm is the difference between the total revenue earned by the sale of output and the cost incurred in producing it. A firm’s profit can range from positive to negative depending upon the level of production of the firm. In general, the firms try to maximize their profit, i.e., the difference between revenue and costs. However, firms may earn negative profit or loss.