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? p ≥ AVC p = MC MR = MC All of the above.

Answer 1

The correct answer is: all of the above.

Step-by-step explanation:

A competitive firm is a price taker, it faces a horizontal line demand curve at the price level. This demand curve also represents average revenue and marginal revenue. So the price is always equal to marginal revenue.

Now, a firm is able to maximize revenue at the point where price equals marginal cost. Since price equals marginal revenue, so marginal revenue also equals marginal cost.

The firm will earn profit only if it is able to cover the variable cost of production. So the price should be either equal to or greater than the average variable cost.

So all the given options are correct.