Question

Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20.
At Q=499, the firm’s profits equal?

Answer 1

Answer:

$3,997

Explanation:

As we know that

Total profit = Total revenue - total cost

where,

Total revenue =  Output sells for × quantity sold

                        = $20 × 499 units

                        = $9,980

And, the total cost is

= Total cost at 500 units - marginal cost of the 500th unit

= 500 units × $12 - $17

= $6,000 - $17

= $5,983

So, the total profit is

= $9,980 - $5,983

= $3,997