Suppose Jason owns a small pastry shop. Jason wants to maximize his profit, and thinking back to the 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

Minimizing average total cost does not necessarily maximize profit. Profit maximization occurs where marginal cost equals marginal revenue, which may not coincide with the minimum average total cost.

Suppose Jason Owns a Small Pastry Shop