Question

suppose that the market for sports watches is a perfectly competitive market. the following graph shows the daily cost curves of a firm operating in this market. in the short - run, at a market price of $80 per watch, this firm will choose to produce watches per day. on the preceding graph, use the blue rectangle (circle symbols) to shade the area representing the firms profit or loss if the market price is $80 and the firm chooses to produce the quantity you already selected.

Explanation:

Step1: Recall profit - maximization rule

In a perfectly - competitive market, a firm maximizes profit (or minimizes loss) in the short - run by producing where $P = MC$.

Step2: Locate the price on the graph

The market price is $P=\$80$. We find the point on the $MC$ curve where the price line at $P = 80$ intersects the $MC$ curve.

Step3: Determine the quantity

From the graph, when $P = 80$, the intersection of the price line and the $MC$ curve occurs at a quantity of 60,000 watches per day.

Step4: Calculate profit or loss

Profit or loss is given by $(\text{Price}-\text{ATC})\times\text{Quantity}$. At $Q = 60000$, $\text{ATC}<\text{Price}$. The area of the profit rectangle is $(\text{Price}-\text{ATC})\times\text{Quantity}$. The height of the rectangle is the difference between the price ($\$80$) and the $ATC$ at $Q = 60000$, and the base is the quantity $Q = 60000$.

Answer:

60,000