Detail

Finally, we need to compute profit for this firm when price = $20. We know that the firm will produce 8 units of output so total revenue must be 8 x 20 = $160. We can easily see that at 8 units of output ATC is 15, so total cost must be 8 x 15 = $120. The difference between these two is $40.

Another way to compute profit is to find the difference between average revenue (price) and average cost per unit or 20 - 15 = 5. This is the average profit per unit so total profit is average profit times output or 5 x 8 = 40. This is shown as the shaded area below.

14. Again consider the firm shown in Figure 3. At the price of $20 the firm will earn:

profits of $42. This would be correct at 7 units of output.
profits of $50. $50 is the fixed cost for this firm.
losses of $50. Losses cannot be correct since total revenue is greater than total cost.
losses of $42. Losses cannot be correct since total revenue is greater than total cost.
profits of $40.