A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating
A) price and average total cost.
B) price and average fixed cost.
C) marginal revenue and marginal cost.
D) price and marginal revenue.

Question

Quizplus · Accepted Answer

In the short run, a competitive firm can maximize profits (or minimize losses) by producing at the output level where marginal revenue (MR) is equal to marginal cost (MC). This is because if MR is greater than MC, producing more output will increase profits, and if MC is greater than MR, producing less output will reduce losses. Therefore, the firm should produce where MR=MC. This is the only option that correctly identifies the profit-maximizing output. Option A is incorrect because it equates price with average total cost, which is not the same as marginal cost. Option B is also incorrect because it equates price with average fixed cost, which is not relevant for determining the profit-maximizing output. Option D is incorrect because it only considers the relationship between price and marginal revenue, but not the relationship between marginal revenue and marginal cost, which is critical for determining the profit-maximizing output.

A Competitive Firm in the Short Run Can Determine the Profit-Maximizing