Study the diagram given below and answer the question.

What is the profit of the Firm at $q_1$?

Both 1 and 3

The correct answer is option 4: Both 1 and 3

Observe that at the output level q1 , the market price p is lower than the AVC.

a. TR = Price × Quantity

          =  Vertical height Op × width O$q_1$

          = The area of rectangle OpA$q_1$

b. The firm’s total variable cost at q1 is as follows:

           TVC = Average variable cost × Quantity

                 = Vertical height OE × Width O$q_1$

                  = The area of rectangle OEB$q_1$

c. The firm’s profit at $q_1$ = TR – (TVC + TFC)

                                               = (The area of rectangle OpA$q_1$  - The area of rectangle OEB$q_1$) - TFC

                                               = - Area EB$A_p$  - TFC