The figure above illustrates a firm's demand and marginal revenue curves and its cost curves.
-If the firm in the figure above attempted to minimize its average total cost by producing 100 pairs of Tommy jeans per day at an average total cost of $20 per pair and it sold those jeans for $80 per pair,the firm would ________.

Question

Quizplus · Accepted Answer

The firm would make a smaller economic profit than a firm that produced 125 jeans because producing at the minimum average total cost does not necessarily maximize profit. Profit maximization occurs where marginal cost equals marginal revenue, not necessarily at the lowest average total cost.

The Figure Above Illustrates a Firm's Demand and Marginal Revenue