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JAMB Economics 1995 Question 22

Question 22

Market Structures

Both in the short run and in the long run, a firm maximizes its profits when

  1. A.MC = MR
  2. B.AC = MC
  3. C.AVC = AC
  4. D.MC = AVC.
Show the answer and explanation

Answer: A (MC = MR)

Explanation

Profit is greatest at the output where the cost of one more unit (MC) equals the revenue it brings (MR); this rule holds in both periods.