A firm has positive fixed cost and positive variable cost.At its current level of output, marginal cost equals average cost.The firm must
A)not be producing at its profit-maximizing level of output.
B)be producing the quantity that minimizes average cost.
C)be operating at a point at which total variable cost equals total fixed cost.
D)be earning negative profit.

Question

Quizplus · Accepted Answer

At the current level of output where the marginal cost equals average cost, the average cost is minimized. Therefore, the firm must be producing the quantity that minimizes average cost. If it were producing at its profit-maximizing level of output, the marginal cost would be equal to marginal revenue, which is not the case here. The firm's profit status is not indicated by this information. And the fact that the total variable cost equals total fixed cost is not necessarily related to the current level of output.

A Firm Has Positive Fixed Cost and Positive Variable Cost