ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Correct answer is D. Firm will be profitable when market price is greater than firm’s minimum average total cost.

Detailed explanation-2: -A firm’s total profit is maximized by producing the level of output at which marginal revenue for the last unit produced equals its marginal cost, or MR = MC. In a perfectly competitive market, MR is equal to the market price P for all levels of output.

Detailed explanation-3: -If a competitive firm is currently producing at the point where the price (P) is greater than the marginal cost (MC), the firm should produce more output so that the marginal cost increases up to the point where it is equal to the market price (P = MC). At this point, the firm will maximise its profits.

Detailed explanation-4: -A firm in perfect competition maximizes profit in the short run by producing an output level at which marginal revenue equals marginal cost, provided marginal revenue is at least as great as the minimum value of average variable cost. For a perfectly competitive firm, marginal revenue equals price and average revenue.

Detailed explanation-5: -If the market price faced by a perfectly competitive firm is above average cost at the profit-maximizing quantity of output, then the firm is making profits. If the market price is below average cost at the profit-maximizing quantity of output, then the firm is making losses.