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The firm

# The firm - Thefirm' (pointdinFigure1. \$6.90(.The fir

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The firm's equilibrium supply of 29 units of output is determined by the intersection of the marginal  cost and marginal revenue curves (point  d  in Figure  1  ). When the firm produces 29 units of output,  its average total cost is found to be \$6.90 (point  c  on the average total cost curve in Figure  1  ). The  firm's profits are therefore given by the area of the shaded rectangle labeled  abed The area of this rectangle is easily calculated. The length of the rectangle is 29. The width is the  difference between the market price (the firm's marginal revenue), \$10, and the firm's average cost of  producing 29 units, \$6.90. This difference is (\$10  ×  \$6.90) = \$3.10. Hence, the area of rectangle  abed  is 29  ×  \$3.1 = \$90, the same amount reported in Table  1  . In general, the firm makes positive  profits whenever its average total cost curve lies below its marginal revenue curve.
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