Suppose Jason owns a small pastry shop.Jason wants to maximise his profit, and thinking back to the university microeconomics class he took, he decides he needs to produce a quantity of pastries which will minimise his average total cost.Will Jason's strategy necessarily maximise profits for his pastry shop?
A)Yes; since Jason's pastry shop is in a perfectly competitive market, the only way to maximise profit is to produce the quantity where average total cost is minimised.
B)Not necessarily; this strategy will only maximise Jason's profit in the long run, but not in the short run.
C)No; in order to maximise profit, Jason would never want to produce the quantity where average total cost is minimised.
D)Not necessarily; depending on demand, Jason may maximise profit by producing a quantity other than that where average total cost is at a minimum.

Question

Quizplus · Accepted Answer

Jason's strategy of producing a quantity of pastries which minimises his average total cost will not necessarily maximise his profit. The profit maximising quantity may depend on the market demand for his pastries. If demand is high, he may be able to charge a higher price and produce a higher quantity, resulting in a higher profit even if it means his average total cost is not at a minimum.

Suppose Jason Owns a Small Pastry Shop