Which of the following statements is correct?
A) In order to maximize profits in the short run, a price taker should always produce at the output level where marginal cost is equal to price.
B) In long-run equilibrium, a price taker will produce at an output level where average total cost is at its minimum.
C) A price taker will remain open in the short run, even if it is earning an economic loss, so long as price is sufficient to cover average variable cost.
D) All of the above are true.

Question

Quizplus · Accepted Answer

A) This is the profit maximizing rule for a firm in the short run, as long as price is greater than average variable cost.
B) In the long run, a price taker will produce at the output level where P=MC=minimum ATC.
C) This is also true, as long as price is covering average variable cost, the firm can still cover some of its fixed costs and may choose to remain open in the short run.

Which of the Following Statements Is Correct