Trying to find the most profitable price and quantity to produce:
A) requires average-cost pricing.
B) requires an estimate of the firm's demand curve.
C) is easy once the average fixed cost is known.
D) is only sensible if demand estimates are exact.
E) All of the above are true.

Question

Quizplus · Accepted Answer

In order to find the most profitable price and quantity to produce, an estimate of the firm's demand curve is necessary. This allows the firm to understand how much consumers are willing to pay at different quantities and prices, allowing them to maximize profits by setting the optimal price and quantity that balances production costs with consumer demand. Average-cost pricing only takes into account the cost of production, and knowing the average fixed cost is not enough to determine the optimal price and quantity. Exact demand estimates are also not necessary, as long as the firm has a general idea of the shape of their demand curve. Therefore, option B is the best choice as it is the most accurate and relevant method for finding the most profitable price and quantity to produce.

Trying to Find the Most Profitable Price and Quantity to Produce