Answer (D) is correct . A firm should increase production until marginal revenue equals marginal cost. In the short run, this is the same as saying a firm in perfect competition will increase production until marginal cost equals price. The result is the short-run maximization of profits. As long as selling price exceeds marginal cost, a firm should continue producing. In the short run in perfect competition, the market price equals marginal revenue because no firm can affect price by its production decisions.
Answer (A) is incorrect because There would be no profit when selling price and total costs are the same.
Answer (B) is incorrect because Equating selling price to total variable costs leaves nothing to cover fixed costs.
Answer (C) is incorrect because Using only average fixed costs ignores variable costs, which increase in total with every unit produced.
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