If a competitive firm's marginal costs always increase with output, then at the profit maximizing output level, producer surplus is:
A) zero because marginal costs equal marginal revenue.
B) zero because price equals marginal costs.
C) positive because price exceeds average variable costs.
D) positive because price exceeds average total costs.
E) positive because revenues are increasing faster than variable costs.

Question

Quizplus · Accepted Answer

Producer surplus is positive because, at the profit-maximizing output level, the price exceeds average variable costs, allowing the firm to cover its variable costs and contribute to fixed costs and profit.

If a Competitive Firm's Marginal Costs Always Increase with Output