Question

If the marginal cost curve is U-shaped, it is possible that the curve will intersect the demand line at two output levels. Which is the profit maximizing output? Explain why?

Answer 1

Yes, it is possible that the U-shaped marginal cost curve will intersect the demand line at two output levels but the profit maximising output will take place at that intersection point where, after the intersection point, the marginal cost curve goes up or we can say marginal cost rises. If after the intersection point, the marginal cost decreases it means the firm can make the profit by increasing the output since the marginal cost of producing extra output is decreasing.