The following figure shows the marginal cost curve and the average total cost curve of a firm operating in a perfectly competitive industry.

-Refer to the figure above.Which of the following statements is true?
A) The firm maximizes profits if it produces 10 units of the good.
B) If the market price is $10, the firm will suffer losses.
C) If the market price is $2, the firm will make profits.
D) The firm makes maximum profits if it produces 30 units.

Question

The following figure shows the marginal cost curve and the average total cost curve of a firm operating in a perfectly competitive industry.
 
-Refer to the figure above.Which of the following statements is true?
A) The firm maximizes profits if it produces 10 units of the good. 
B) If the market price is $10, the firm will suffer losses. 
C) If the market price is $2, the firm will make profits. 
D) The firm makes maximum profits if it produces 30 units.

Quizplus · Accepted Answer

The firm maximizes profits where marginal cost equals marginal revenue (price), which is not visible in the question but typically occurs at the point where the marginal cost curve intersects the demand curve from below. Without specific cost and revenue data, the most common assumption is that profit maximization occurs at a higher level of output, assuming increasing marginal costs and a downward-sloping demand curve. Therefore, among the given options, producing 30 units suggests a higher level of output which might align with profit maximization under typical circumstances.

The Following Figure Shows the Marginal Cost Curve and the Average