A competitive firm is choosing an output level to maximize its profits in the short run.Which of the following is not necessarily true? (Assume that marginal cost is not constant and is well defined at all levels of output.)
A)Marginal cost is at least as large as average variable cost.
B)Total revenues are at least as large as total costs.
C)Price is at least as large as average variable cost.
D)Price equals marginal cost.
E)The marginal cost curve is rising.

Question

Quizplus · Accepted Answer

To maximize profits, a competitive firm will produce where price equals marginal cost (D), not necessarily where total revenues are at least as large as total costs. This is because, in the short run, a firm might still operate even if it incurs losses (total costs exceed total revenues) as long as it covers its variable costs, which is reflected in (C). Choices A, C, D, and E are generally true under the assumption of profit maximization and the given conditions.

A Competitive Firm Is Choosing an Output Level to Maximize