Question

If a competitive firm maximizes short−run profits by producing some quantity of​ output, which of the following must be TRUE at that level of​ output?

A. MR≻MC.

B. p≻MC.

C. p≻AVC.

D. All of the above.

Answer 1

If a competitive firm maximise short-term profits by producing some quantity of output, then it implies that, at that output level price must be equal to marginal cost and marginal revenue (P=MC=MR) because in perfect competition price is always equal to marginal cost, and on the other hand, price should be greater than average variable cost because if the firm is earning profits then it implies that price is greater than average variable cost, therefore, the right answer is option C.