FIGURE 8.5 Price and Average Cost at the Raspberry Farm In (a), price intersects marginal cost above the average

cost curve. Since price is greater than average cost, the firm is making a profit. In (b), price intersects marginal cost

at the minimum point of the average cost curve. Since price is equal to average cost, the firm is breaking even. In (c),

price intersects marginal cost below the average cost curve. Since price is less than average cost, the firm is making

a loss.

First consider a situation where the price is equal to $5 for a pack of frozen raspberries. The rule for a profit-

maximizing perfectly competitive firm is to produce the level of output where Price= MR = MC, so the

raspberry farmer will produce a quantity of approximately 85, which is labeled as E' in Figure 8.5 (a).

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