This graph shows the marginal costs of each bike, along with the market price. Select the correct answer from the options availa
ble. Based on this graph, at which level of production does the producer’s profit stop increasing?
Bike 4
Bike 5
Bike 6
Bike 7
Bike 4
Bike 5
Bike 6
Bike 7
2 answers:
Answer:
The correct option is 4. The producer’s profit stop increasing when the level of production is 7 Bike.
Step-by-step explanation:
In the given graph the orange line represents the market price and the blue is represents the marginal cost.
Marginal cost is the additional cost of each unit.
The profit is the difference between market price and marginal cost.
Where the price and marginal cost is equal that is known as break even condition or shut down point.
If MC is more than P, then the producer is facing loss. So increasing the product after break even condition does not make any sense.
From the given graph it is noticed that the market price and marginal cost are equal when the level of production is 6 Bike because both line and curve intersecting each other.
It means at bike 6 the producer’s profit is 0. So, will produce till 6 biks. But after that he will face loss.
Therefore the producer’s profit stop increasing when the level of production is 7 Bike.
You might be interested in