Authors libby rittenberg 485
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between marginal revenue (MR) and average total cost (ATC) at an
output of 6,700 pounds of radishes times the number of pounds of
radishes produced, 6,700, in Figure 9.7 "Applying the Marginal Decision
Rule".
Heads Up!
Look carefully at the rectangle that shows economic profit in Panel (b)
of Figure 9.7 "Applying the Marginal Decision Rule". It is found by taking
the profit-maximizing quantity, 6,700 pounds, then reading up to
the ATC curve and the firm’s demand curve at the market price. Economic
profit per unit equals price minus average total cost (P − ATC).
The firm’s economic profit equals economic profit per unit times the
quantity produced. It is found by extending horizontal lines from
the ATC and MR curve to the vertical axis and taking the area of the
rectangle formed.
There is no reason for the profit-maximizing quantity to correspond to the
lowest point on theATC curve; it does not in this case. Students sometimes
make the mistake of calculating economic profit as the difference between
the price and the lowest point on the ATC curve. That gives us the
maximum economic profit per unit, but we assume that firms maximize
economic profit, not economic profit per unit. The firm’s economic profit
equals economic profit per unit times quantity. The quantity that
maximizes economic profit is determined by the intersection
of ATC and MR.
Economic Losses in the Short Run
Attributed to Libby Rittenberg and Timothy Tregarthen
Saylor URL: />
Saylor.org
485
