If a firm is maximizing its profit and producing less than the output at which its average total cost is minimized,then that firm
A) must be suffering an economic loss.
B) must be earning an economic profit.
C) has excess capacity.
D) is producing at its capacity output.
E) must be earning a normal profit.

Question

Quizplus · Accepted Answer

When a firm is producing less than the output at which its average total cost is minimized, it has excess capacity. This means that the firm could produce more output with the same level of average total cost. Since the firm is maximizing its profit, it is not producing more because the additional output would not be profitable. Therefore, it is not suffering an economic loss, earning an economic profit, producing at its capacity output, or earning a normal profit.

If a Firm Is Maximizing Its Profit and Producing Less