If a firm is maximising its profit and producing less than the output at which its average total cost is minimised, then that firm
A) must be earning an economic profit.
B) has excess capacity.
C) must be earning a normal profit.
D) must be suffering an economic loss.
E) is producing at its capacity output.

Question

Quizplus · Accepted Answer

If a firm is producing less than the output at which its average total cost is minimised, then it has excess capacity. This means it could increase its output while still producing at a lower average total cost, which would increase profits. Therefore, the firm is not producing at its capacity output and is not maximising its profit.

If a Firm Is Maximising Its Profit and Producing Less