The firm chooses the level of output at which profits are maximized.
it is profitable to produce at all (that is, if minimum of AVC), the firm
chooses the level of output where marginal revenue equals marginal cost.
In part (i), this is shown as the level of output where the vertical distance
between TR and TC is largest (and thus where the slopes of the TR and
curves are the same). In part (ii), price is equal to marginal revenue since
the firm is a price taker, and so the profit-maximizing level of output is
the point at which price (marginal revenue) equals marginal cost. For
each of the units sold, the firm earns revenue of p and the average
total cost is c; therefore, total profit is which is the shaded area.
p>Q∗
(p−c)Q∗,