Chapter 1. eFigure 8.4

eFigure
Isoquants
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You must read each slide, and complete any questions on the slide, in sequence.
E-Figure Title
Question 1 of 3

Question 1.

Given the price (P) and the profit-maximizing quantity (Q*) shown in the graph, at the point of production which of the following is true?

A.
B.
C.
D.

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Correct! To maximize its profit the firm will produce where price is equal to marginal cost. This is how the firm determines its profit-maximizing quantity. At this point, we know that P =MR and since P = MC, it follows that MR = MC. Finally, by examining the graph we see that the ATC curve at Q* is below the MC curve. Accordingly, P > ATC since P = MC. In this case, all of the statements (a) through (c) are true, though it is important to note that these conditions may not always hold at the profit-maximizing quantity.
Incorrect. To maximize its profit the firm will produce where price is equal to marginal cost. This is how the firm determines its profit-maximizing quantity. At this point, we know that P =MR and since P = MC, it follows that MR = MC. Finally, by examining the graph we see that the ATC curve at Q* is below the MC curve. Accordingly, P > ATC since P = MC. In this case, all of the statements (a) through (c) are true, though it is important to note that these conditions may not always hold at the profit-maximizing quantity.