In the short run, the profit- maximizing behaviour for a price- taking firm requires it to operate where
A) P = MC, given that P is greater than or equal to AVC.
B) P = TR = TC.
C) P MR MC.
D) P = MC, given that P is greater than or equal to ATC.
E) AVC = AR.

Question

In the short run, the profit- maximizing behaviour for a price- taking firm requires it to operate where
A) P = MC, given that P is greater than or equal to AVC.
B) P = TR = TC.
C) P > MR > MC.
D) P = MC, given that P is greater than or equal to ATC.
E) AVC = AR.

Quizplus · Accepted Answer

In the short run, a price-taking firm should aim to maximize its profits by producing at a level where marginal cost (MC) equals price (P) as long as P is greater than or equal to the average variable cost (AVC) of producing that output. This is because if P is less than AVC, the firm would be better off shutting down production in the short run to minimize losses. Therefore, option A is the best choice. Options B, C, D, and E do not accurately reflect the profit-maximizing behaviour of a price-taking firm in the short run.

In the Short Run, the Profit- Maximizing Behaviour for a Price-