Suppose Jason owns a small pastry shop. Jason wants to maximize his profit, and thinking back to the microeconomics class he took in college, he decides he needs to produce a quantity of pastries which will minimize his average total cost.
Will Jason's strategy necessarily maximize profits for his pastry shop?
A) No; In order to maximize profit, Jason would never want to produce the quantity where average total cost is minimized.
B) Yes; Since Jason's pastry shop is in a perfectly competitive market, the only way to maximize profit is to produce the quantity where average total cost is minimized.
C) Not necessarily; Depending on demand, Jason may maximize profit by producing a quantity other than that where average total cost is at a minimum.
D) Not necessarily; This strategy will only maximize Jason's profit in the long run, but not in the short run.
Question 2
Refer to Figure 12-2. Why is the total revenue curve a ray from the origin?
A) because the firm can sell its product at a constant price
B) because revenue increases at a decreasing rate
C) because the firm must lower its price to sell more
D) because revenue increases at an increasing rate
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