Acme is a perfectly competitive firm. It has the cost schedules given in the above table and has a fixed cost of $12.00. The price of Acme's product is $14.20

What is Acme's most profitable amount of output? What is Acme's total economic profit or loss?

The profit maximizing level of output is either 7 or 8 units. Acme's total economic profit is the economic profit per unit times the number of units produced. The economic profit per unit equals the price minus the average total cost. To calculate average total cost, note that when Acme produces 8 units, the average variable cost per unit is $6.50 and the average fixed cost is $1.50, so Acme's aver-age total cost equals $8.00. Thus Acme makes an economic profit of $14.20 - $8.00 = $6.20 per unit. Hence Acme's total economic profit is ($6.20 ) × (8 units) = $49.60. Acme's total economic profit when it makes 7 units is (except for rounding) identical.

Economics

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Economics