In the short run, which of the following condition is mandatory for a firm for its profit maximization at $q_0$?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Price must be greater than the average variable cost
"A firm wishes to maximise its profit. The firm would like to identify the quantity $q_0$ at which its profits are maximum. By definition, then, at any quantity other than $q_0$ , the firm’s profits are less than at $q_0$ . For profits to be maximum, three conditions must hold at $q_0$ :
1. The price, p, must equal MC
2. Marginal cost must be non-decreasing at $q_0
3. For the firm to continue to produce, in the short run, price must be greater than the average variable cost (p > AVC); in the long run, price must be greater than the average cost (p > AC)."