Figure 1613 Price MC F i ATC MR 05 Quantity 17 Refer to Figu

Figure 16-13 Price MC F- -i ATC MR 05 Quantity 17. Refer to Figure 16-13. Which of the following areas represents the profit for this profit maximizing monopolistically competitive firm? a. BCHG b. BCIJ c. GHIJ d. OBCL

Solution

In monopolistically competitive market profit is maximized at MR=MC. Profit-maximizing quantity is L and price is B. So total revenue is the area of BCLO.

To produce L units ATC=J so total cost is the area JILO

Total profit=TR-TC=(BCLO)-(JILO)=(BCIJ)

Option b is correct.