Question
Asked Oct 16, 2019
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Refer to the figure. What is their total profit or loss?

–$400,000

$360,000

$840,000

–$200,000

Price
per can
16
14
MC
12
10
AC
Price
6
2
20
60
80 100 120 140 160 180 200
Cans of pineapple (thousands)
40
4t
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Price per can 16 14 MC 12 10 AC Price 6 2 20 60 80 100 120 140 160 180 200 Cans of pineapple (thousands) 40 4t

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Expert Answer

Step 1

The profit is the excess revenue made by the firm after deducting the total cost from the total revenue. Thus, it is the additional revenue made after covering the cost of production by a firm. The profit can be calculated by subtracting the total cost of production from the total revenue made by the firm.

Step 2

In this case, the price of the product is given to be $7 per can and the quantity is determined at the point where the marginal cost curve intersects with the marginal revenue curve which is the horizontal straight price line and it is 120,000 cans. Thus, the total revenue of the firm can be calculated by multiplying the total quantity with the per unit price as follows:

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Total revenue Quantity x Price 120,000x 7 840,000

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Step 3

The average cost of producing a can is given to be approximately $4 and thus, the total cost of producing the 12...

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Total cost Average costx Quantity 4x120,000 480,000

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Business

Economics

Cost efficiency and scarcity

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