Question

When a profit maximizing firm is at its short run optimum:

1) average cost of the product is at its lowest possible point, whether profit is being made or not

2) the firm will be shut down it its price is less than the average fixed cost

3) the profit per unit of output will be at its maximum possible level

4) none of the above will be tru

Answer 1

3) the profit per unit of output will be at its maximum possible level 

In general, profits will be maximized when the firm chooses the level of output where its marginal revenue equals its marginal cost.