Question

"A profit-maximizing firm in a competitive market is able to sell its product for $7. At its current level of output, the firm's average total cost is $10. The firm's marginal cost curve crosses its marginal revenue curve at an output level of 9 units. The firm experiences a_______________"

Answer 1

Answer:

d. loss of exactly $27.

Explanation:

The profit maximizing level is the level at which the marginal revenue equal to the marginal cost

In mathematically,

Marginal revenue = Marginal cost

Given that

Sale price = $7

Average total cost = $10

Output level = 9 units

We know that

Average total cost = Total cost ÷ Quantity

$10 = Total cost ÷ 9 units

So, the total cost is $90

And, the

Total revenue = Price × Quantity

= $7 × 9 units

= $63

Now the profit or loss is

= Total revenue - Total cost

= $63 - $90

= -$27

This -$27 reflects the loss