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JAMB Economics 2011 Question 17

Question 17

Market Structures

The optimal range of output for a perfectly competitive firm is where

  1. A.AC is lowest
  2. B.AVC is lowest
  3. C.MC is rising
  4. D.MC is falling.
Show the answer and explanation

Answer: A (AC is lowest)

Explanation

The optimum (most efficient) output is where average cost is lowest, because each unit is then produced as cheaply as possible. The lowest point of AVC is only the point below which the firm shuts down.