Suppose Jason owns a small pastry shop.Jason wants to maximize his profit,and thinking back to the college microeconomics class he took in college,he decides he needs to produce a quantity of pastries which will minimize his average total cost.Will Jason's strategy necessarily maximize profits for his pastry shop?
A) Yes; Since jason's pastry shop is in a perfectly competitive market, the only way to maximize profit is to produce the quantity where average total cost is minimized.
B) Not necessarily; This strategy will only maximize Jason's profit in the long run, but not in the short run.
C) No; In order to maximize profit, Jason would never want to produce the quantity where average total cost is minimized.
D) Not necessarily; Depending on demand, Jason may maximize profit by producing a quantity other than that where average total cost is at a minimum.

Question

Quizplus · Accepted Answer

While minimizing average total cost is important for maximizing profit in the long run, in the short run Jason may need to consider demand conditions. Depending on the level of demand, it may be profitable for Jason to produce a quantity other than the one where average total cost is at a minimum. Therefore, the strategy of minimizing average total cost may not necessarily maximize profits for Jason's pastry shop.

Suppose Jason Owns a Small Pastry Shop