Maximizing the Profit Margin? According to the marginal principle, the firm sh
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.
