{"id":6437,"date":"2018-02-05T15:36:07","date_gmt":"2018-02-05T15:36:07","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-microeconomics\/chapter\/reading-profits-and-losses-with-the-average-cost-curve\/"},"modified":"2024-04-25T21:52:28","modified_gmt":"2024-04-25T21:52:28","slug":"profits-and-losses-with-the-average-cost-curve","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-microeconomics\/chapter\/profits-and-losses-with-the-average-cost-curve\/","title":{"raw":"Calculating Profits and Losses","rendered":"Calculating Profits and Losses"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Objectives<\/h3>\r\n<ul>\r\n \t<li>Describe a firm's profit margin<\/li>\r\n \t<li>Use the average cost curve to calculate and analyze a firm's profits and losses<\/li>\r\n \t<li>Identify and explain the firm's break-even point<\/li>\r\n<\/ul>\r\n<\/div>\r\n<h2>Profits and Losses with the Average Cost Curve<\/h2>\r\nDoes maximizing profit (producing where MR = MC) imply an actual economic profit? The answer depends on firm's profit margin (or average profit), which is\u00a0the relationship between price and average total cost. If the price that a firm charges is higher than its average cost of production for that quantity produced, then the firm's profit margin is positive and it is\u00a0earning\u00a0economic profits. Conversely, if the price that a firm charges is lower than its average cost of production, the firm's profit margin is negative and it is\u00a0suffering an economic loss. You might think that, in this situation, the farmer may want to shut down immediately. Remember, however, that the firm has already paid for fixed costs, such as equipment, so it may make sense to\u00a0continue to produce and incur a loss. Figure 1 illustrates three situations: (a) where at\u00a0the profit maximizing quantity of output (where P = MC),\u00a0price is greater than\u00a0average cost, (b) where at\u00a0the profit maximizing quantity of output (where P = MC),\u00a0price equals average cost,\u00a0and (c) where at\u00a0the profit maximizing quantity of output (where P = MC),\u00a0price is less than\u00a0average cost.\r\n\r\n[caption id=\"\" align=\"aligncenter\" width=\"726\"]<img class=\"\" src=\"https:\/\/textimgs.s3.amazonaws.com\/OSecon\/m63906\/CNX_Econ2e_C08_014.jpg#fixme\" alt=\"The three graphs show how profits are affected depending on where total cost intersects average cost.\" width=\"726\" height=\"653\" \/> <strong>Figure 1. Price and Average Cost at the Raspberry Farm.\u00a0<\/strong>In (a), price intersects marginal cost above the average cost curve. Since price is greater than average cost, the firm is making a profit. In (b), price intersects marginal cost at the minimum point of the average cost curve. Since price is equal to average cost, the firm is breaking even. In (c), price intersects marginal cost below the average cost curve. Since price is less than average cost, the firm is making a loss.[\/caption]\r\n<p id=\"ch08mod02_p17\">First consider a situation where the price is equal to $5 for a pack of frozen raspberries. The rule for a profit-maximizing perfectly competitive firm is to produce the level of output where Price= MR = MC, so the raspberry farmer will produce a quantity of approximately 85, which is labeled as E' in Figure 1(a). The firm's average cost of production is labeled C'. Thus, the firm's profit margin is the distance between E' and C', and it is positive. The firm is making money, but how much?<\/p>\r\nRemember that the area of a rectangle is equal to its base multiplied by its height. Total revenues will be the quantity of 85 times the price of $5.00, which is shown by the rectangle from the origin over to a quantity of 85 packs (the base) up to point E\u2019 (the height), over to the price of $5, and back to the origin. The average cost of producing 85 packs is shown by point C\u2019 or about $3.50. Total costs will be the quantity of 85 times the average cost of $3.50, which is shown by the area of the rectangle from the origin to a quantity of 85, up to point C, over to the vertical axis and down to the origin. The difference between total revenues and total costs is profits. Thus, profits will be the blue shaded rectangle on top.\r\n<p id=\"ch08mod02_p18\">We calculate this as:<\/p>\r\n\r\n<div id=\"ch08mod02_uneq04\" style=\"text-align: center;\">[latex]\\begin{array}{lll}\\text{profit}&amp; =&amp; \\text{total revenue}-\\text{total cost}\\\\&amp; =&amp; \\left(85\\right)\\left(\\$5.00\\right)-\\left(85\\right)\\left(\\$3.50\\right)\\\\&amp; =&amp; \\$127.50\u200b\u200b\\end{array}[\/latex]<\/div>\r\n<p id=\"ch08mod02_p19\">Or, we can calculate it as:<\/p>\r\n\r\n<div id=\"ch08mod02_uneq05\" style=\"text-align: center;\">[latex]\\begin{array}{lll}\\text{profit}&amp; =&amp; \\text{(price}-\\text{average cost)}\\times \\text{quantity}\\\\ &amp; =&amp; \\left(\\$5.00-\\$3.50\\right) \\times 85\\\\ &amp; =&amp; \\$127.50\u200b\u200b\\end{array}[\/latex]<\/div>\r\nNow consider Figure 1(b), where the price has fallen to $2.75 for a pack of frozen raspberries. Again, the perfectly competitive firm will choose the level of output where Price = MR = MC, but in this case, the quantity produced will be 75. At this price and output level, where the marginal cost curve is crossing the average cost curve, the price the firm receives is exactly equal to its average cost of production. We call this the <strong>break-even<\/strong> <strong>point<\/strong>, since the profit margin is zero.\r\n\r\nThe farm\u2019s total revenue at this price will be shown by the large shaded rectangle from the origin over to a quantity of 75 packs (the base) up to point E (the height), over to the price of $2.75, and back to the origin. The height of the average cost curve at Q = 75, i.e. point E, shows the average cost of producing this quantity. Total costs will be the quantity of 75 times the average cost of $2.75, which is shown by the area of the rectangle from the origin to a quantity of 75, up to point E, over to the vertical axis and down to the origin. It should be clear that the rectangles for total revenue and total cost are the same. Thus, the firm is making zero profit. The calculations are as follows:\r\n<div id=\"ch08mod02_uneq06\" style=\"text-align: center;\">[latex]\\begin{array}{lll}\\text{profit}&amp; =&amp; \\text{total revenue}-\\text{total cost}\\hfill \\\\ &amp; =&amp; \\left(75\\right)\\left($2.75\\right)-\\left(75\\right)\\left($2.75\\right)\\hfill \\\\ &amp; =&amp; $0\\hfill \\end{array}[\/latex]<\/div>\r\n<p id=\"ch08mod02_p22\">Or, we can calculate it as:<\/p>\r\n\r\n<div id=\"ch08mod02_uneq07\" style=\"text-align: center;\">[latex]\\begin{array}{lll}\\text{profit}&amp; =&amp; \\text{(price}-\\text{average cost)}\\times \\text{quantity}\\hfill \\\\ &amp; =&amp; \\left($2.75-$2.75\\right)\\times 75\\hfill \\\\ &amp; =&amp; $0\\hfill \\end{array}[\/latex]<\/div>\r\nIn Figure 1(c), the market price has fallen still further to $2.00 for a pack of frozen raspberries. At this price, marginal revenue intersects marginal cost at a quantity of 65. The farm\u2019s total revenue at this price will be shown by the large shaded rectangle from the origin over to a quantity of 65 packs (the base) up to point E\u201d (the height), over to the price of $2, and back to the origin. The average cost of producing 65 packs is shown by Point C\u201d which shows the average cost of producing 65 packs is about $2.73. Since the price is less than average cost, the firm\u2019s profit margin is negative.\u00a0Total costs will be the quantity of 65 times the average cost of $2.73, which the area of the rectangle from the origin to a quantity of 65, up to point C\u201d, over to the vertical axis and down to the origin shows. It should be clear from examining the two rectangles that total revenue is less than total cost. Thus, the firm is losing money and the loss (or negative profit) will be the rose-shaded rectangle.\r\n<p id=\"ch08mod02_p24\">The calculations are:<\/p>\r\n\r\n<div id=\"ch08mod02_uneq08\" style=\"text-align: center;\">[latex]\\begin{array}{lll}\\text{profit}&amp; =&amp; \\text{(total revenue}-\\text{ total cost)}\\hfill \\\\ &amp; =&amp; \\left(65\\right)\\left($2.00\\right)-\\left(65\\right)\\left($2.73\\right)\\hfill \\\\ &amp; =&amp; -$47.45\\hfill \\end{array}[\/latex]<\/div>\r\n<p id=\"ch08mod02_p25\">Or:<\/p>\r\n\r\n<div id=\"ch08mod02_uneq09\" style=\"text-align: center;\">[latex]\\begin{array}{lll}\\text{profit}&amp; =&amp;\\text{(price}-\\text{average cost)}\\times \\text{quantity}\\hfill \\\\ &amp; =&amp; \\left($2.00-$2.73\\right) \\times 65\\hfill \\\\ &amp; =&amp; -$47.45\\hfill \\end{array}[\/latex]<\/div>\r\n<p id=\"ch08mod02_p26\">If the market price that a\u00a0perfectly competitive firm receives leads it to produce at a quantity where the price is greater than average cost, the firm will earn profits. If the price the firm receives causes it to produce at a quantity where price equals average cost, which occurs at the minimum point of the AC curve, then the firm earns zero profits. Finally, if the price the firm receives leads it to produce at a quantity where the price is less than average cost, the firm will earn losses. Table 1 summarizes this.<\/p>\r\n\r\n<div class=\"textbox tryit\">\r\n<h3>Try It<\/h3>\r\nhttps:\/\/assess.lumenlearning.com\/practice\/6ae8af85-dab4-4555-8302-55b5cd55ab6e\r\n\r\nhttps:\/\/assess.lumenlearning.com\/practice\/da999b0b-31a4-4e7f-aba4-99ef6c04d831\r\n\r\nhttps:\/\/assess.lumenlearning.com\/practice\/296dd005-b960-4b0d-8ce9-7a1015fd2164\r\n\r\n<\/div>\r\n<table id=\"ch08mod02_tab04\" summary=\"The table shows how the difference in amount between price and ATC effects a firm\u2019s earnings. Column 1 is labeled \">\r\n<thead>\r\n<tr>\r\n<th colspan=\"2\">Table 1. Profit and Average Total Cost<\/th>\r\n<\/tr>\r\n<tr>\r\n<th>If...<\/th>\r\n<th>Then...<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Price &gt; ATC<\/td>\r\n<td>Firm earns an economic profit<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Price = ATC<\/td>\r\n<td>Firm earns zero economic profit<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Price &lt; ATC<\/td>\r\n<td>Firm earns a loss<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<div id=\"eip-785\" class=\"economics clearup\">\r\n<div class=\"textbox key-takeaways\">\r\n<h3>Which intersection should a firm choose?<\/h3>\r\n<p id=\"eip-idm583875056\">At a price of $2, MR intersects MC at two points: Q = 20 and Q = 65. It never makes sense for a firm to choose a level of output on the downward sloping part of the MC curve, because the profit is lower (the loss is bigger). Thus, the correct choice of output is Q = 65.<\/p>\r\n\r\n<\/div>\r\n<div class=\"textbox examples\">\r\n<h3>Watch It<\/h3>\r\nWatch this video for more practice solving for the profit-maximizing point and finding total revenue using a table.\r\n<iframe src=\"\/\/plugin.3playmedia.com\/show?mf=2649004&amp;p3sdk_version=1.10.1&amp;p=20361&amp;pt=375&amp;video_id=BQvtnjWZ0ig&amp;video_target=tpm-plugin-ytc7eicm-BQvtnjWZ0ig\" width=\"800px\" height=\"450px\" frameborder=\"0\" marginwidth=\"0px\" marginheight=\"0px\"><\/iframe>\r\n\r\n<\/div>\r\n<div class=\"textbox tryit\">\r\n<h3>Try It<\/h3>\r\nPlay the simulation below multiple times to practice applying these concepts and to see how different choices lead to different outcomes.\r\n\r\n<iframe src=\"https:\/\/www.branchtrack.com\/projects\/u3flnw4s\/embed\" width=\"850\" height=\"500\" frameborder=\"0\"><\/iframe>\r\n\r\n<\/div>\r\n<div class=\"textbox tryit\">\r\n<h3>Try It<\/h3>\r\nThese questions allow you to get as much practice as you need, as you can click the link at the top of the first question (\u201cTry another version of these questions\u201d) to get a new set of questions. Practice until you feel comfortable doing the questions.[ohm_question height=\"1000\"]<span data-sheets-value=\"{&quot;1&quot;:3,&quot;3&quot;:276570}\" data-sheets-userformat=\"{&quot;2&quot;:513,&quot;3&quot;:{&quot;1&quot;:0},&quot;12&quot;:0}\">276570<\/span>[\/ohm_question]\r\n\r\n<\/div>\r\n<div class=\"textbox learning-objectives\">\r\n<h3><span style=\"color: #333333;\"><strong>Glossary<\/strong><\/span><\/h3>\r\n[glossary-page][glossary-term]break-even point:[\/glossary-term]\r\n[glossary-definition]\u00a0the level of output where price just equals average total cost, so profit is zero[\/glossary-definition][glossary-term]profit margin:\u00a0[\/glossary-term]\r\n[glossary-definition]at any given quantity of output, the difference between price and average total cost; also known as average profit[\/glossary-definition][\/glossary-page]\r\n\r\n<\/div>\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Objectives<\/h3>\n<ul>\n<li>Describe a firm&#8217;s profit margin<\/li>\n<li>Use the average cost curve to calculate and analyze a firm&#8217;s profits and losses<\/li>\n<li>Identify and explain the firm&#8217;s break-even point<\/li>\n<\/ul>\n<\/div>\n<h2>Profits and Losses with the Average Cost Curve<\/h2>\n<p>Does maximizing profit (producing where MR = MC) imply an actual economic profit? The answer depends on firm&#8217;s profit margin (or average profit), which is\u00a0the relationship between price and average total cost. If the price that a firm charges is higher than its average cost of production for that quantity produced, then the firm&#8217;s profit margin is positive and it is\u00a0earning\u00a0economic profits. Conversely, if the price that a firm charges is lower than its average cost of production, the firm&#8217;s profit margin is negative and it is\u00a0suffering an economic loss. You might think that, in this situation, the farmer may want to shut down immediately. Remember, however, that the firm has already paid for fixed costs, such as equipment, so it may make sense to\u00a0continue to produce and incur a loss. Figure 1 illustrates three situations: (a) where at\u00a0the profit maximizing quantity of output (where P = MC),\u00a0price is greater than\u00a0average cost, (b) where at\u00a0the profit maximizing quantity of output (where P = MC),\u00a0price equals average cost,\u00a0and (c) where at\u00a0the profit maximizing quantity of output (where P = MC),\u00a0price is less than\u00a0average cost.<\/p>\n<div style=\"width: 736px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"\" src=\"https:\/\/textimgs.s3.amazonaws.com\/OSecon\/m63906\/CNX_Econ2e_C08_014.jpg#fixme\" alt=\"The three graphs show how profits are affected depending on where total cost intersects average cost.\" width=\"726\" height=\"653\" \/><\/p>\n<p class=\"wp-caption-text\"><strong>Figure 1. Price and Average Cost at the Raspberry Farm.\u00a0<\/strong>In (a), price intersects marginal cost above the average cost curve. Since price is greater than average cost, the firm is making a profit. In (b), price intersects marginal cost at the minimum point of the average cost curve. Since price is equal to average cost, the firm is breaking even. In (c), price intersects marginal cost below the average cost curve. Since price is less than average cost, the firm is making a loss.<\/p>\n<\/div>\n<p id=\"ch08mod02_p17\">First consider a situation where the price is equal to $5 for a pack of frozen raspberries. The rule for a profit-maximizing perfectly competitive firm is to produce the level of output where Price= MR = MC, so the raspberry farmer will produce a quantity of approximately 85, which is labeled as E&#8217; in Figure 1(a). The firm&#8217;s average cost of production is labeled C&#8217;. Thus, the firm&#8217;s profit margin is the distance between E&#8217; and C&#8217;, and it is positive. The firm is making money, but how much?<\/p>\n<p>Remember that the area of a rectangle is equal to its base multiplied by its height. Total revenues will be the quantity of 85 times the price of $5.00, which is shown by the rectangle from the origin over to a quantity of 85 packs (the base) up to point E\u2019 (the height), over to the price of $5, and back to the origin. The average cost of producing 85 packs is shown by point C\u2019 or about $3.50. Total costs will be the quantity of 85 times the average cost of $3.50, which is shown by the area of the rectangle from the origin to a quantity of 85, up to point C, over to the vertical axis and down to the origin. The difference between total revenues and total costs is profits. Thus, profits will be the blue shaded rectangle on top.<\/p>\n<p id=\"ch08mod02_p18\">We calculate this as:<\/p>\n<div id=\"ch08mod02_uneq04\" style=\"text-align: center;\">[latex]\\begin{array}{lll}\\text{profit}& =& \\text{total revenue}-\\text{total cost}\\\\& =& \\left(85\\right)\\left(\\$5.00\\right)-\\left(85\\right)\\left(\\$3.50\\right)\\\\& =& \\$127.50\u200b\u200b\\end{array}[\/latex]<\/div>\n<p id=\"ch08mod02_p19\">Or, we can calculate it as:<\/p>\n<div id=\"ch08mod02_uneq05\" style=\"text-align: center;\">[latex]\\begin{array}{lll}\\text{profit}& =& \\text{(price}-\\text{average cost)}\\times \\text{quantity}\\\\ & =& \\left(\\$5.00-\\$3.50\\right) \\times 85\\\\ & =& \\$127.50\u200b\u200b\\end{array}[\/latex]<\/div>\n<p>Now consider Figure 1(b), where the price has fallen to $2.75 for a pack of frozen raspberries. Again, the perfectly competitive firm will choose the level of output where Price = MR = MC, but in this case, the quantity produced will be 75. At this price and output level, where the marginal cost curve is crossing the average cost curve, the price the firm receives is exactly equal to its average cost of production. We call this the <strong>break-even<\/strong> <strong>point<\/strong>, since the profit margin is zero.<\/p>\n<p>The farm\u2019s total revenue at this price will be shown by the large shaded rectangle from the origin over to a quantity of 75 packs (the base) up to point E (the height), over to the price of $2.75, and back to the origin. The height of the average cost curve at Q = 75, i.e. point E, shows the average cost of producing this quantity. Total costs will be the quantity of 75 times the average cost of $2.75, which is shown by the area of the rectangle from the origin to a quantity of 75, up to point E, over to the vertical axis and down to the origin. It should be clear that the rectangles for total revenue and total cost are the same. Thus, the firm is making zero profit. The calculations are as follows:<\/p>\n<div id=\"ch08mod02_uneq06\" style=\"text-align: center;\">[latex]\\begin{array}{lll}\\text{profit}& =& \\text{total revenue}-\\text{total cost}\\hfill \\\\ & =& \\left(75\\right)\\left($2.75\\right)-\\left(75\\right)\\left($2.75\\right)\\hfill \\\\ & =& $0\\hfill \\end{array}[\/latex]<\/div>\n<p id=\"ch08mod02_p22\">Or, we can calculate it as:<\/p>\n<div id=\"ch08mod02_uneq07\" style=\"text-align: center;\">[latex]\\begin{array}{lll}\\text{profit}& =& \\text{(price}-\\text{average cost)}\\times \\text{quantity}\\hfill \\\\ & =& \\left($2.75-$2.75\\right)\\times 75\\hfill \\\\ & =& $0\\hfill \\end{array}[\/latex]<\/div>\n<p>In Figure 1(c), the market price has fallen still further to $2.00 for a pack of frozen raspberries. At this price, marginal revenue intersects marginal cost at a quantity of 65. The farm\u2019s total revenue at this price will be shown by the large shaded rectangle from the origin over to a quantity of 65 packs (the base) up to point E\u201d (the height), over to the price of $2, and back to the origin. The average cost of producing 65 packs is shown by Point C\u201d which shows the average cost of producing 65 packs is about $2.73. Since the price is less than average cost, the firm\u2019s profit margin is negative.\u00a0Total costs will be the quantity of 65 times the average cost of $2.73, which the area of the rectangle from the origin to a quantity of 65, up to point C\u201d, over to the vertical axis and down to the origin shows. It should be clear from examining the two rectangles that total revenue is less than total cost. Thus, the firm is losing money and the loss (or negative profit) will be the rose-shaded rectangle.<\/p>\n<p id=\"ch08mod02_p24\">The calculations are:<\/p>\n<div id=\"ch08mod02_uneq08\" style=\"text-align: center;\">[latex]\\begin{array}{lll}\\text{profit}& =& \\text{(total revenue}-\\text{ total cost)}\\hfill \\\\ & =& \\left(65\\right)\\left($2.00\\right)-\\left(65\\right)\\left($2.73\\right)\\hfill \\\\ & =& -$47.45\\hfill \\end{array}[\/latex]<\/div>\n<p id=\"ch08mod02_p25\">Or:<\/p>\n<div id=\"ch08mod02_uneq09\" style=\"text-align: center;\">[latex]\\begin{array}{lll}\\text{profit}& =&\\text{(price}-\\text{average cost)}\\times \\text{quantity}\\hfill \\\\ & =& \\left($2.00-$2.73\\right) \\times 65\\hfill \\\\ & =& -$47.45\\hfill \\end{array}[\/latex]<\/div>\n<p id=\"ch08mod02_p26\">If the market price that a\u00a0perfectly competitive firm receives leads it to produce at a quantity where the price is greater than average cost, the firm will earn profits. If the price the firm receives causes it to produce at a quantity where price equals average cost, which occurs at the minimum point of the AC curve, then the firm earns zero profits. Finally, if the price the firm receives leads it to produce at a quantity where the price is less than average cost, the firm will earn losses. Table 1 summarizes this.<\/p>\n<div class=\"textbox tryit\">\n<h3>Try It<\/h3>\n<p>\t<iframe id=\"assessment_practice_6ae8af85-dab4-4555-8302-55b5cd55ab6e\" class=\"resizable\" src=\"https:\/\/assess.lumenlearning.com\/practice\/6ae8af85-dab4-4555-8302-55b5cd55ab6e?iframe_resize_id=assessment_practice_id_6ae8af85-dab4-4555-8302-55b5cd55ab6e\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:300px;\"><br \/>\n\t<\/iframe><\/p>\n<p>\t<iframe id=\"assessment_practice_da999b0b-31a4-4e7f-aba4-99ef6c04d831\" class=\"resizable\" src=\"https:\/\/assess.lumenlearning.com\/practice\/da999b0b-31a4-4e7f-aba4-99ef6c04d831?iframe_resize_id=assessment_practice_id_da999b0b-31a4-4e7f-aba4-99ef6c04d831\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:300px;\"><br \/>\n\t<\/iframe><\/p>\n<p>\t<iframe id=\"assessment_practice_296dd005-b960-4b0d-8ce9-7a1015fd2164\" class=\"resizable\" src=\"https:\/\/assess.lumenlearning.com\/practice\/296dd005-b960-4b0d-8ce9-7a1015fd2164?iframe_resize_id=assessment_practice_id_296dd005-b960-4b0d-8ce9-7a1015fd2164\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:300px;\"><br \/>\n\t<\/iframe><\/p>\n<\/div>\n<table id=\"ch08mod02_tab04\" summary=\"The table shows how the difference in amount between price and ATC effects a firm\u2019s earnings. Column 1 is labeled\">\n<thead>\n<tr>\n<th colspan=\"2\">Table 1. Profit and Average Total Cost<\/th>\n<\/tr>\n<tr>\n<th>If&#8230;<\/th>\n<th>Then&#8230;<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Price &gt; ATC<\/td>\n<td>Firm earns an economic profit<\/td>\n<\/tr>\n<tr>\n<td>Price = ATC<\/td>\n<td>Firm earns zero economic profit<\/td>\n<\/tr>\n<tr>\n<td>Price &lt; ATC<\/td>\n<td>Firm earns a loss<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<div id=\"eip-785\" class=\"economics clearup\">\n<div class=\"textbox key-takeaways\">\n<h3>Which intersection should a firm choose?<\/h3>\n<p id=\"eip-idm583875056\">At a price of $2, MR intersects MC at two points: Q = 20 and Q = 65. It never makes sense for a firm to choose a level of output on the downward sloping part of the MC curve, because the profit is lower (the loss is bigger). Thus, the correct choice of output is Q = 65.<\/p>\n<\/div>\n<div class=\"textbox examples\">\n<h3>Watch It<\/h3>\n<p>Watch this video for more practice solving for the profit-maximizing point and finding total revenue using a table.<br \/>\n<iframe loading=\"lazy\" src=\"\/\/plugin.3playmedia.com\/show?mf=2649004&amp;p3sdk_version=1.10.1&amp;p=20361&amp;pt=375&amp;video_id=BQvtnjWZ0ig&amp;video_target=tpm-plugin-ytc7eicm-BQvtnjWZ0ig\" width=\"800px\" height=\"450px\" frameborder=\"0\" marginwidth=\"0px\" marginheight=\"0px\"><\/iframe><\/p>\n<\/div>\n<div class=\"textbox tryit\">\n<h3>Try It<\/h3>\n<p>Play the simulation below multiple times to practice applying these concepts and to see how different choices lead to different outcomes.<\/p>\n<p><iframe loading=\"lazy\" src=\"https:\/\/www.branchtrack.com\/projects\/u3flnw4s\/embed\" width=\"850\" height=\"500\" frameborder=\"0\"><\/iframe><\/p>\n<\/div>\n<div class=\"textbox tryit\">\n<h3>Try It<\/h3>\n<p>These questions allow you to get as much practice as you need, as you can click the link at the top of the first question (\u201cTry another version of these questions\u201d) to get a new set of questions. Practice until you feel comfortable doing the questions.<iframe loading=\"lazy\" id=\"ohm0\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=0-0-0-0-0&theme=oea&iframe_resize_id=ohm0&show_question_numbers\" width=\"100%\" height=\"1000\"><\/iframe><\/p>\n<\/div>\n<div class=\"textbox learning-objectives\">\n<h3><span style=\"color: #333333;\"><strong>Glossary<\/strong><\/span><\/h3>\n<div class=\"titlepage\">\n<dl>\n<dt>break-even point:<\/dt>\n<dd>\u00a0the level of output where price just equals average total cost, so profit is zero<\/dd>\n<dt>profit margin:\u00a0<\/dt>\n<dd>at any given quantity of output, the difference between price and average total cost; also known as average profit<\/dd>\n<\/dl>\n<\/div>\n<\/div>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-6437\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Maximizing Profit. <strong>Authored by<\/strong>: Clark Aldrich for Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>How Perfectly Competitive Firms Make Output Decisions. <strong>Authored by<\/strong>: OpenStax College. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/cnx.org\/contents\/vEmOH-_p@4.48:EkZLadKh@7\/How-Perfectly-Competitive-Firm\">https:\/\/cnx.org\/contents\/vEmOH-_p@4.48:EkZLadKh@7\/How-Perfectly-Competitive-Firm<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em>. <strong>License Terms<\/strong>: Download for free at http:\/\/cnx.org\/contents\/bc498e1f-efe9-43a0-8dea-d3569ad09a82@4.44<\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">All rights reserved content<\/div><ul class=\"citation-list\"><li>Maximizing Profit Practice- Micro 3.9. <strong>Provided by<\/strong>: ACDC Leadership. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.youtube.com\/watch?v=BQvtnjWZ0ig\">https:\/\/www.youtube.com\/watch?v=BQvtnjWZ0ig<\/a>. <strong>License<\/strong>: <em>Other<\/em>. <strong>License Terms<\/strong>: Standard YouTube License<\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":29,"menu_order":7,"template":"","meta":{"_candela_citation":"[{\"type\":\"cc\",\"description\":\"How Perfectly Competitive Firms Make Output Decisions\",\"author\":\"OpenStax 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