Explanation please -)- Question 11 Consider the firm whose MC- AC- AVC.docx

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Explanation please :)? Question 11 Consider the firm whose MC, AC, AVC, AFC functions are shown in the following graph. If the output price is equal to $16, then the firm maximizes profits by producing? 10 units 100 units 120 units 50 units 75 units Solution The Profit is maximised when P=MR=MC AT P=10, Quantity produced=50 but MC is at its lowest point, nearly zero. Profit is possible when there is some additional cost for an extra unit produced. so MC has to be rising and >0 So quantity =50 is not profit maximising. When Price is =16, quantity produced = 100 This is the point where MC is rising and >0 and P=MR=MC=16 So this quantity is profit maximising at Output price =16 .

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