Suppose your firm has a U-shaped average variable cost curve and operates in a perfectly competitive market. If you produce where the product price (marginal revenue) equals average variable cost (on the upward sloping portion of the AVC curve) , then your output will:

A) exceed the profit-maximizing level of output.
B) be smaller than the profit-maximizing level of output.
C) equal the profit-maximizing level of output.
D) generate zero economic profits.

U-Shaped AVC

The U-Shaped Average Variable Cost curve represents how the per-unit production expenses initially decrease due to increasing returns and subsequently increase after reaching a certain scale due to diminishing returns.

Perfectly Competitive

A perfectly competitive market is one with many buyers and sellers, where no single entity can influence the market price, and all products are identical.

Profit-Maximizing

A strategy or approach focused on increasing a firm’s profits to the highest possible level given its production costs and market demand.