In Figure 10.1, at Q1 level of output: Figure 10.1 Graph-There are three curves on the graph; MC and AC, and horizontal demand curve D=P=AR=MR; the demand curve is horizontal at P1=2; AC dips below the demand curve; quantity Q1 occurs where the downward sloping portion of AC intersects the demand curve; quantity Q2 occurs where MC intersects AC at the lowest point of AC; quantity Q3 occurs where MC intersects the demand curve; quantity Q4 occurs where the upward sloping portion of AC intersects the demand curve In Figure 10.1, at Q1 level of output: the last unit output adds more to cost than to revenue. marginal revenue is less than $2. average revenue is less than $2. marginal revenue exceeds marginal cost