6. In the short run, a purely competitive firm that seeks to maximize profit will produce:
A. where the demand and the ATC curves intersect.
B. where total revenue exceeds total cost by the maximum amount.
C. that output where economic profits are zero.
D. at any point where the total revenue and total cost curves intersect.

Question

6.    In the short run, a purely competitive firm that seeks to maximize profit will produce:
A.    where the demand and the ATC curves intersect.
B.    where total revenue exceeds total cost by the maximum amount.
C.    that output where economic profits are zero.
D.    at any point where the total revenue and total cost curves intersect.

BlackTom AI · Accepted Answer

The question asks about the short-run profit-maximizing production choice for a purely competitive firm.
Option A: 'where the demand and the ATC curves intersect.' In perfect competition, the firm faces a perfectly elastic (horizontal) demand at the market price, and production decisions are not made at the ATC crossing with demand. The intersection of demand and ATC is not the profit-maximizing condition for a price-taking firm, so this option misstates the criterion.
Option B: 'where total revenue exceeds total cost by the maximum amount.' This points to maximizing the distance between TR and TC, i.e., maximizing profit (or minimizing losses if profits are negative). In the short run for perfect competition, a firm seeks to choose output where profit is largest by comparing TR and TC, so this aligns with the profit-maximizing condition.
Option C: 'that output where economic profits are zero.' Producing where profits are zero would imply breaking even, not maximizing profits. A firm would produce where profits are positive if possible, or shut down if profits are negative; zero-profit output is only a special case when price equals average cost, not the general profit-maximizing rule.
Option D: 'at any point where the total revenue and total cost curves intersect.' The intersection of TR and TC gives zero profit, but 'any point' there ignores the possibility of higher profits elsewhere. Maximizing profit requires finding the output level that yields the largest positive difference (TR − TC), not merely where TR equals TC.
In summary, the logic centers on comparing total revenue to total cost to identify the output level that yields the greatest positive profit (or the smallest loss) in the short run. The other options either misidentify the profit-maximizing condition (A), imply zero profits when positive profits could exist (C), or rely on a zero-profit intersection that does not guarantee maximum profit (D).

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