Question

Which of the following conditions must hold for a firm to maximise its profit? (A) Price = Short run marginal cost
(B) Short run marginal cost curve is non-decreasing
(C) Price \(\leq\) Marginal cost
(D) Price \(\geq\) Average variable cost

• A. (B), (C) and (D) only
• B. (A), (B) and (C) only
• C. (A), (B), (C) and (D)
• D. (A), (B) and (D) only

Hint:

Profit maximisation requires: \(P = MC\) (equilibrium). MC rising at equilibrium. \(P \geq AVC\) (shutdown condition).

Answer 1

The Correct Option is D

Step 1: Recall profit maximisation condition.
- A firm maximises profit where \(MR = MC\). In perfect competition, \(MR = P\). Thus, profit maximisation requires \(P = MC\).
- The short run MC curve must be rising (non-decreasing) at equilibrium to ensure maximum, not minimum.
- The firm must cover at least AVC in the short run to continue production, i.e., \(P \geq AVC\).
Step 2: Evaluate statements.
- (A) Correct → \(P = MC\).
- (B) Correct → MC curve should be upward sloping.
- (C) Incorrect → Profit maximisation requires equality, not \(P \leq MC\).
- (D) Correct → Condition to continue production in the short run.
Step 3: Conclusion.
Thus, correct set is (A), (B), (D).
Final Answer: \[ \boxed{(A), (B), (D)} \]