Check Your Understanding

  1. Question

    Refer to the graph provided.

    image
    1. At what level of output does the firm maximize profit? Explain how you know.

    2. At the profit-maximizing quantity of output, is the firm profitable, does it just break even, or does it incur a loss? Explain.

  2. Question

    If a firm has a total cost of $500 at a quantity of 50 units, and it is at that quantity that average total cost is minimized for the firm, what is the lowest price that would allow the firm to break even (that is, earn a normal profit)? Explain.