A firm is at its optimum size when ___________

Analyze the question The question asks about the optimum size of a firm. This is a concept from the theory of the firm (production and costs), not about profit-maximizing output.

Explain the concept

• The optimum size of a firm is the size at which the firm produces its output at the lowest possible average cost per unit. At this size, the firm is using its resources most efficiently, so it gets the greatest output for the minimum cost.
• This is different from the equilibrium (profit-maximizing) output, which is where MC = MR. That condition tells a firm how much to produce to maximize profit, not what its ideal size is.

Step-by-step evaluation of the options

• A. It has a motive to increase output. This describes a firm that is still expanding, so it is not yet at its optimum.
• B. It produces the greatest output at a minimum cost. This matches the textbook definition of optimum size: maximum efficiency and the lowest cost per unit.
• C. MC = MR. This is the condition for profit maximization (equilibrium of the firm). A firm can be in equilibrium at any size, even a non-optimal one, so this isn't the definition of optimum size.
• D. MC < MR. This means the firm can still increase profit by producing more, so it is not at equilibrium, let alone at optimum size.

Answer The correct option is B. A firm is at its optimum size when it produces the greatest output at the minimum cost, which is the point of lowest average cost.

Tip Keep these two ideas separate for the exam:

• Optimum size → minimum average cost (efficiency)
• Equilibrium output → MC = MR (maximum profit)

If the question says "optimum size" or "optimum scale", think "lowest cost per unit". If it says "profit maximization" or "equilibrium", think "MC = MR".