Suppose Jason owns a small pastry shop.Jason wants to maximize his profit, and thinking back to the microeconomics class he took in college, he decides he needs to produce a quantity of pastries which will minimize his average total cost.Will Jason's strategy necessarily maximize profits for his pastry shop?
A)Yes; since Jason's pastry shop is in a perfectly competitive market, the only way to maximize profit is to produce the quantity where average total cost is minimized.
B)Not necessarily; this strategy will only maximize Jason's profit in the long run, but not in the short run.
C)No; in order to maximize profit, Jason would never want to produce the quantity where average total cost is minimized.
D)Not necessarily; depending on demand, Jason may maximize profit by producing a quantity other than that where average total cost is at a minimum.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, producing the quantity where average total cost is minimized will indeed maximize profit. However, since the question does not give information about the type of market Jason's pastry shop is in, option A cannot be assumed to be true. Option B is also incorrect as there is no mention of time period in the question. Option C is incorrect because minimizing average total cost is one way to maximize profit. Option D is the correct answer as Jason's profit maximization strategy depends on the demand for his pastries. If the demand is high, he could potentially produce more than the quantity that minimizes average total cost and still maximize profits.

Suppose Jason Owns a Small Pastry Shop