A profit-maximizing firm in a competitive market is currently producing 200 units of output. It has average revenue of $9 and average total cost of $7. It follows that the firm's
A)average total cost curve intersects the marginal cost curve at an output level of less than 200 units.
B)average variable cost curve intersects the marginal cost curve at an output level of less than 200 units.
C)profit is $400.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

A) The average total cost (ATC) curve intersecting the marginal cost (MC) curve at an output level of less than 200 units implies that the firm could produce at a lower cost, resulting in higher profits. Therefore, it is not the case.
B) The average variable cost (AVC) curve intersecting the MC curve at an output level of less than 200 units implies that the firm could produce at a lower cost if it reduces its output level. Therefore, it is not the case.
C) Profit = Total Revenue - Total Cost, which is ($9 x 200) - ($7 x 200) = $400. Therefore, it is correct.
Thus, D is the best choice.

A Profit-Maximizing Firm in a Competitive Market Is Currently Producing