As the price of a good fluctuates, a profit-maximizing firm will expand or contract production along its:
A) average cost curve.
B) average product curve.
C) marginal cost curve.
D) marginal product curve.

Question

Quizplus · Accepted Answer

As the price of a good fluctuates, a profit-maximizing firm will expand or contract production along its marginal cost curve. This is because producing an additional unit of output will increase the firm's profit if the marginal revenue from that unit is greater than or equal to the marginal cost of production. Therefore, the firm will increase production up to the point where marginal revenue equals marginal cost, but will not produce beyond that point because it would result in lower profit. The average cost and product curves do not take into consideration the marginal changes in production, and the marginal product curve only shows the change in output resulting from changing inputs, but not necessarily the profitability of producing that output.

As the Price of a Good Fluctuates, a Profit-Maximizing Firm