In order to maximize profits,a firm that can sell all it wants without affecting price should produce
A)where average variable costs are minimized.
B)where marginal cost is equal to average variable costs.
C)where marginal cost is equal to price.
D)where marginal cost is a minimum.

Question

Quizplus · Accepted Answer

For a firm that can sell all it wants without affecting price, the optimal production level is where marginal cost is equal to price. This is because at this production level, the extra revenue earned from selling one more unit (which is equal to the price) is exactly offset by the extra cost incurred in producing that unit (which is equal to marginal cost). Therefore, producing any more or any less than this level would result in lower profits. And since the goal of the firm is to maximize profits, producing at the point where MC = P is the best choice.

In Order to Maximize Profits,a Firm That Can Sell All