Firms in a competitive market maximize profits by operating at the level of output which minimizes their average cost of production in the short run. Agree or disagree with this statement and explain your reasons.

Firms in a competitive market maximize profits by operating at the level of output which minimizes their average cost of production in the short run. Agree or disagree with this statement and explain your reasons.

 

 

 

Answer:

The statement is incorrect.

Competitive firms maximize profit by operating at that output level, which equates price (= marginal revenue for perfect competitors) with their marginal cost. Average cost of production is not considered in the profit-maximizing decision.

Asked on February 15, 2018 in economics.
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