Question

In the short run, the profit-maximizing firm will ______.

A. break even if marginal revenue equals marginal cost
B. make an economic profit if marginal cost is less than average total cost
C. incur an economic loss if average fixed cost exceeds marginal revenue
D. incur an economic loss if average total cost exceeds marginal revenue

Answer 1

In the short run, the profit-maximizing firm will incur an economic loss if average total cost exceeds marginal revenue.

Step-by-step explanation:

Profits and Losses with the Average Cost Curve

When a profit-maximizing firm operates in the short run, it will incur an economic loss if the average total cost (ATC) exceeds the marginal revenue (MR). Option D, incur an economic loss if average total cost exceeds marginal revenue, is the correct answer. This means that the firm's costs of production are higher than the revenue it generates from selling its output, resulting in a net loss for the firm.