At any price equal to ______ a firm can maximize profit either by producing the best positive sales quantity or by shutting down.
A) the maximum of AC
B) the minimum of MR
C) the minimum of AC
D) the minimum of MC

Question

Quizplus · Accepted Answer

At any given price, a firm can choose to maximize profit either by producing a positive sales quantity or by shutting down. In order to make this decision, the firm needs to consider its costs. The minimum point of the average cost (AC) curve is the point at which the firm is producing output at the lowest possible cost. At this point, the firm is able to cover all of its variable costs and some of its fixed costs. If the price is greater than the minimum of AC, the firm will continue to produce and will increase production until marginal revenue (MR) equals marginal cost (MC). However, if the price is less than the minimum of AC, the firm will not be able to cover its fixed costs, and it will shut down. Therefore, the best choice in this scenario is C, the minimum point of AC.

At Any Price Equal to ______ a Firm Can Maximize