For a perfectly competitive firm in short-run equilibrium, marginal cost is $8, average variable cost is $6, and average total cost is $7. Profit is getting maximized at current output and price and the firm is earning total supernormal profit of $100. How many units of output are being produced? Answer is 100. Can somebody explain me?
Hi. When you refer to profit maximizing diagram in fig : 7-2 of CT-7 2015 material, you can see that maximum profit is the area of rectangle : with firm's output as length and difference between MC and AC at that output as breadth. Here MC-AC = 1 & profit is 100. So Profit = (MC-AC) * Q which is 100 = 1*Q, hence Q=100.
