Remember that the area of a rectangle is equal to its base multiplied by its height. The farm’s total revenue at

this price will be shown by the rectangle from the origin over to a quantity of 85 packs (the base) up to point E'

(the height), over to the price of $5, and back to the origin. The average cost of producing 80 packs is shown by

point C or about $3.50. Total costs will be the quantity of 85 times the average cost of $3.50, which is shown by

the area of the rectangle from the origin to a quantity of 90, up to point C, over to the vertical axis and down to

the origin. The difference between total revenues and total costs is profits. Thus, profits will be the blue shaded

rectangle on top.

We calculate this as:
196 8 • Perfect Competition

Or, we can calculate it as:

Now consider Figure 8.5 (b), where the price has fallen to $2.75 for a pack of frozen raspberries. Again, the
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