Figure 14-2Suppose a firm operating in a competitive market has the following cost curves:Refer to Figure 14-2. If the market price is $10, what is the firm's total revenue?

Question

Figure 14-2Suppose a firm operating in a competitive market has the following cost curves:​Refer to Figure 14-2. If the market price is $10, what is the firm's total revenue?

BlackTom AI · Accepted Answer

First, note the problem setup: in a competitive market, a firm maximizes profit by producing where price equals marginal cost (P = MC), and the total revenue (TR) is price times quantity (TR = P × Q).

Option evaluation:
- Option "$15": This would imply a quantity of Q = 1.5 at price $10, since TR = P × Q and 10 × Q = 15 gives Q = 1.5. However, the figure shows the firm’s chosen output at the quantity where MC = MR (price). The MC curve intersects the price level of $10 at a higher quantity than 1.5, so $15 is not the firm’s total revenue.

- Option "$30": This corresponds to Q = 3 (since 10 × 3 = 30). The dashed lines on the graph indicate the intersection of price $10 with the relevant MC/quantity decision occurs at a larger quantity than 3, so $30 does not reflect the firm’s actual output given P = MC = $10.

- Option "$35": This implies Q = 3.5 (because 10 × 3.5 = 35). Again, the graph shows the quantity where MC equals the price is around 5 units, not 3.5, so $35 is inconsistent with the depicted output choice.

- Option "$50": This corresponds to Q = 5 (since 10 × 5 = 50). The figure’s vertical dashed line at the quantity where MC = MR (price 10) aligns with Q = 5, yielding total revenue of 10 × 5 = 50. Since price equals MR and the firm produces at that quantity, this TR is the correct calculation.

Summary: At a market price of $10, the firm maximizes profit where MC = MR, which occurs at Q ≈ 5 in the provided diagram. Therefore, total revenue is 10 × 5 = $50, making this the correct choice among the options. The other TR values correspond to smaller quantities that do not match the quantity the firm would produce given P = MR = $10 per the graph.

Microeconomics Week 4 Quiz Microeconomics Week 4 Quiz

Figure 14-2Suppose a firm operating in a competitive market has the following cost curves:Refer to Figure 14-2. If the market price is $10, what is the firm's total revenue?

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Figure 14-2Suppose a firm operating in a competitive market has the following cost curves:​Refer to Figure 14-2. If the market price is $10, what is the firm's total revenue?

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Log in for full answers

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