The accompanying graph illustrates a firm's average revenue (AR) curve and average cost (AC) curve. The firm produces desks, so assume it can only produce whole units of desks (e.g., it can produce 5 or 6 desks but not 5.5 desks). Move the maximum profit line by adjusting its endpoints to represent the maximum profit margin per unit the firm can possibly earn. 17 16 Price 20 19 AC Max Profit 18 15 14 AR 13 12 11 10 4 9 When the firm is producing 4 desks, profit is 8 7 greater than when the firm is producing 9 desks. 6 5 When the firm is producing 3 desks, profit is 4 3 when the firm is producing 8 desks. 2 1 0 0 1 2 3 4 -5 6 7 8 9 10 Quantity

The accompanying graph illustrates a firm's average revenue (AR) curve and average cost (AC) curve. The firm produces desks, so assume it can only produce whole units of desks (e.g., it can produce 5 or 6 desks but not 5.5 desks). Move the maximum profit line by adjusting its endpoints to represent the maximum profit margin per unit the firm can possibly earn. 17 16 Price 20 19 AC Max Profit 18 15 14 AR 13 12 11 10 4 9 When the firm is producing 4 desks, profit is 8 7 greater than when the firm is producing 9 desks. 6 5 When the firm is producing 3 desks, profit is 4 3 when the firm is producing 8 desks. 2 1 0 0 1 2 3 4 -5 6 7 8 9 10 Quantity

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter5: Investment Decisions: Look Ahead And Reason Back

Section: Chapter Questions

Problem 5.6IP

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