Question

In the short run, a profit-maximizing firm, faced with U-shaped average cost curves, is producing a level of output at which the average total cost of production is minimized. At this level of output, which of the following is true for the firm?


Marginal cost equals average fixed cost.


a

Marginal cost equals average variable cost.


b

Marginal cost equals average total cost.


c

Profit per unit equals average total cost.


d

Profit per unit equals marginal cost.

Answer 1

c

At the minimum of the average total cost curve, marginal cost equals average total cost (MC = ATC). (Also, for a price-taking profit-maximizer P = MC, so if it produces at ATC’s minimum then P = ATC and economic profit is zero.)