A purely competitive firm whose goal is to maximize profit will choose to produce the amount of output
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A purely competitive firm whose goal is to maximize profit will choose to produce the amount of output at which: LO10.4 a. TR and TC are equal. b. TR exceeds TC by as much as possible. c. TC exceeds TR by as much as possible. d. none of the above. |
Here is the full solution including the answer and explanation.
Explanation
b is correct
In pure competition, profit would be maximized when the distance between total revenue and the total cost is maximum and total revenue is more than total cost by the maximum amount. Thus, the firm earns an economic profit at this point where the price is greater than the average total cost.
a is incorrect
If the total cost is equal to total revenue firm would earn just normal profit and profit is not maximized rather firm just gets the return to its costs incurred.
c is incorrect
If the total cost is larger than total revenue then the firm would incur losses as the cost of producing goods would be more than earning revenue from it.
d is incorrect
If total revenue is larger by the maximum amount than total cost then the firm can earn maximum profit.
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