Assume that a firms marginal revenue curve intersects the ri

Assume that a firm\'s marginal revenue curve intersects the rising portion of the marginal cost curve al 100 units of output. At this output level, a profit-maximizing firm\'s total cost is $1,000. If the price of the product is $3 per unit and the firm produces at the profit-maximizing level, the firm will earn an economic profit equal to:

Solution

Correct option (b).

When MR = MC, it\'s the equilibrium position for a profit-maximizing firm.

Total cost = $1,000

Average Total Cost, ATC = TC / Q = $1,000 / 100 = $10

Profit = Q x (P - ATC) = 100 x $(3 - 10) = 100 x - $7 = - $700