This question is simply a matter of reading the graph correctly. The easiest approach, in a case such as this, is to simply consider each answer choice carefully. First though, we've shaded some of the defined areas on the graph to further illustrate:

	0CBQ* = Total Cost
	0PAQ* = Total Revenue
	CPAB = Profit
	DCBE = Fixed Cost
	0DEQ* = Variable Cost

4. If the profit maximizing firm shown in Figure 2 is producing Q* units of output, it is operating where:

1. losses equal DCBE. The area defined by the points DCBE turns out to be fixed cost; fixed cost is the difference between total variable cost and total cost. Also, this firm is earning a profit; therefore, losses can't be correct.
2. total variable costs equal area DPAE. The area defined by the points DPAE is profit + fixed cost, so this must be wrong.
3. profits are at their maximum value and equal CPAB.
4. total fixed costs are equal to area 0DEQ*. The area defined by the points 0DEQ* is total variable cost.
5. profits are at their maximum value and equal DPAE. The area defined by the points DPAE is profit + fixed cost, so this must be wrong.