The following figure shows the marginal cost curve,average total cost curve,average variable cost curve,and marginal revenue curve for a firm for different levels of output.
Figure 9-3
-Refer to Figure 9-3.Assuming that price at 0R is $10,the profit maximizing level of output for the firm is _____.
A)OA where marginal cost just covers AVC
B)OB where average profit per unit is the greatest
C)OC where marginal cost equals the $10 price
D)OK where average cost equals marginal revenue and the firm earns a normal rate of return

Question

The following figure shows the marginal cost curve,average total cost curve,average variable cost curve,and marginal revenue curve for a firm for different levels of output.
Figure 9-3 
-Refer to Figure 9-3.Assuming that price at 0R is $10,the profit maximizing level of output for the firm is _____.
A)OA where marginal cost just covers AVC 
B)OB where average profit per unit is the greatest 
C)OC where marginal cost equals the $10 price 
D)OK where average cost equals marginal revenue and the firm earns a normal rate of return

Quizplus · Accepted Answer

The profit maximizing level of output for the firm is where marginal cost equals marginal revenue, which is at point C. The price at 0R is $10, so the firm will produce at the point where marginal cost equals $10. Option A is incorrect because the firm would not want to only cover its AVC, but would want to cover all of its costs. Option B is incorrect because the average profit per unit is not relevant for determining the profit maximizing level of output. Option D is incorrect because the firm may not necessarily earn a normal rate of return at the point where average cost equals marginal revenue.

The Following Figure Shows the Marginal Cost Curve,average Total Cost