Chapter 58, Problem 6MCQ

To determine

The correct option for given situation where firm’s aim can be determined in selecting its output level at P = MC.

Answer to Problem 6MCQ

Option d is correct answer.

Explanation of Solution

Explanation for correct option:

d.

Firm should produce such level of output at which marginal cost is equal to the price which is shown below:

  

The firm will maximize its profit if does so. Therefore, option d is correct.

Explanation for incorrect options:

a.

The firm does not aim to produce all if it tries to reach the point where price is equal to marginal cost. If firm produces up to the point where MC is greater than price then it will incur loss. Therefore, option a is incorrect.

b.

The firm will not surely maximize its profit when average total cost is below the price though it earns profit for sure. Therefore, option b is incorrect.

c.

The firm that does not possess any fixed cost will produce in bulk as variable cost will always prevail. The firm produces at the level where P = MC to seek maximum profit. Therefore, option c is incorrect.

e.

Firm will try to select the output level at which it can maximize its profit whether it is a service industry or manufacturing industry. Therefore, option e is incorrect.

Economics Concept Introduction

Introduction: The price taking firms can reduce the cost of production if they produce the correct amount of products. In other words, profit can be maximized if quantity produced is at minimum cost.