In Exhibit 8-3, if the price of the firm's product is 2.00 per unit, the firm will produce:

• A. Zero units, since price is less than average total cost
• B. The maximum possible output regardless of cost
• C. The quantity where marginal cost equals 2.00
• D. The quantity where average variable cost equals 2.00

Answer: (C)

Verified step by step guidance

1. Understand the relationship between price, marginal cost (MC), average total cost (ATC), and average variable cost (AVC) in the firm's production decision.
2. Recall that a profit-maximizing firm produces the quantity where price equals marginal cost, i.e., \(P = MC\).
3. Identify the quantity where the marginal cost curve intersects the price line at \$2.00$; this is the output level the firm will choose to produce.
4. Check if the price covers the average variable cost to ensure the firm will produce in the short run; if \(P \geq AVC\), the firm produces the quantity where \(P = MC\).
5. Note that producing zero units happens only if price is below AVC, and producing maximum output regardless of cost is not profit-maximizing behavior.