-Refer to Figure 9 -8. In the long run, why will the firm produce Q_funits and not Q_gunits, which has a lower its average cost of production? A) At Q_g, marginal revenue t is less than average revenue cost which will result in a loss for the firm. B) At Q_g, average cost exceeds marginal cost so the firm will actually make a loss. C) The firm's goal is to charge a high price and make a small profit rather than a low price and no profit. D) Although its average cost of production is lower when the firm produces Q_gunits, to be able to sell its output the firm will have to charge a price below average cost, resulting in a loss.

Question

Quizplus · Accepted Answer

In the long run, firms aim to maximize profit, which occurs where marginal cost equals marginal revenue. Producing at a quantity where the firm must sell below average cost would result in a loss, hence the firm will choose a production level where it can sell at or above average cost to ensure profitability.