Regardless of the economic environment, every firm will maximize profits by operating at the minimum point of its average total cost curves. Is this statement true or false? Explain.

Question

Quizplus · Accepted Answer

To maximize profits, firms set MR = MC. The only market environment in which this necessarily implies production at the minimum of average costs is in long-run equilibrium under perfect competition. In the short run, even perfectly competitive firms may produce at an output different from minimum average costs.

Regardless of the Economic Environment, Every Firm Will Maximize Profits