Figure 9.7 Applying the Marginal Decision Rule The market price is determined by the intersection of demand and supply As always, the firm maximizes profit by applying the marginal decision rule It takes the market price, $0.40 per pound, as given and selects an output at which MR equals MC Economic profit per unit is the difference between ATC and price (here, $0.14 per pound); economic profit is profit per unit times the quantity produced ($0.14 × 6,700 = $938) We can use the graph in Figure 9.7 "Applying the Marginal Decision Rule" to compute Mr Gortari’s economic profit Economic profit per unit is the difference between price and average total cost At the profit-maximizing output of 6,700 pounds of radishes per month, average total cost (ATC) is $0.26 per pound, as shown in Panel (b) Price is $0.40 per pound, so economic profit per unit is $0.14 Economic profit is found by multiplying economic profit per unit by the number of units produced; the firm’s economic profit is thus $938 ($0.14 × 6,700) It is shown graphically by the area of the shaded rectangle in Panel (b); this area equals the vertical distance Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 484