The figure given below shows three Short Run Average Total Cost (SRATC) curves and the Long Run Average Total Cost (LRATC) curve of a firm.Figure 8.3

-A firm wishing to maximize profits will produce at the level of output where:
A)marginal cost is equal to zero.
B)its total cost curve intersects its total revenue curve.
C)its costs are at a minimum.
D)total revenue exceeds total cost by the largest amount.
E)marginal revenue exceeds marginal cost by the greatest amount.

Question

The figure given below shows three Short Run Average Total Cost (SRATC) curves and the Long Run Average Total Cost (LRATC) curve of a firm.Figure 8.3
 
-A firm wishing to maximize profits will produce at the level of output where:
A)marginal cost is equal to zero. 
B)its total cost curve intersects its total revenue curve. 
C)its costs are at a minimum. 
D)total revenue exceeds total cost by the largest amount. 
E)marginal revenue exceeds marginal cost by the greatest amount.

Quizplus · Accepted Answer

To maximize profits, a firm should produce at the level of output where the difference between total revenue and total cost is the greatest. This is because profit maximization occurs when the gap between what is earned (total revenue) and what is spent (total cost) is the largest.

The Figure Given Below Shows Three Short Run Average Total