Question

chapter 08: aplia homework: perfect competition
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.
note: in the following question, you should enter a positive number in the numeric entry field.
the area of this rectangle indicates that the firms
would be $
per day.

Explanation:

Step1: Recall profit - maximization rule

In perfect - competition, a firm maximizes profit in the short - run by producing where $P = MC$. Given $P=\$80$, we find the quantity on the $x$ - axis where the price line $P = 80$ intersects the $MC$ curve.

Step2: Identify the quantity

By looking at the graph, when $P = 80$, the $MC$ curve intersects the price line at a quantity of 70,000 watches per day.

Step3: Calculate profit or loss

Profit or loss is given by $\text{Profit}=(P - ATC)\times Q$. At $Q = 70$ (in thousands), $P = 80$ and from the graph, $ATC\approx40$. So, $\text{Profit}=(80 - 40)\times70000$.

Step4: Compute the profit value

$\text{Profit}=40\times70000=\$2800000$.

Answer:

The firm will choose to produce 70,000 watches per day. The area of the rectangle represents the firm's profit, and the profit is $\$2800000$ per day.