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QUESTION

Maximizing the Profit Margin?

Maximizing the Profit​ Margin? According to the marginal​ principle, the firm should choose the quantity of output at which price equals marginal cost. A tempting alternative is to maximize the​ firm's profit​ margin, defined as the difference between price and​ short-run average total cost. Using this​ approach, which of the following would best describe the​ firm's short-run supply​ curve? Assume the firm will shut down rather than operate at a loss.

A. A vertical line at the quantity that minimizes average cost.

B. It is equal to the average cost​ curve, but shifted up.

C. It is equal to the average cost curve.

D. A vertical line at the quantity that minimizes average cost for prices above minimum average cost.

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