The correct answer is C. Both 1 and 2.
A firm maximizes its profit by producing at the point where marginal revenue equals marginal cost. This is because at this point, the firm is producing the quantity of output where the additional revenue from selling one more unit of output is equal to the additional cost of producing one more unit of output.
The marginal cost curve cuts the average cost curve from below at the minimum point of the average cost curve. This is because the marginal cost curve represents the additional cost of producing one more unit of output, while the average cost curve represents the average cost of producing all units of output. At the minimum point of the average cost curve, the average cost of producing one more unit of output is equal to the marginal cost of producing one more unit of output.
Therefore, a firm maximizes its profit by producing at the point where marginal revenue equals marginal cost and the marginal cost curve cuts the average cost curve from below.
Option A is incorrect because it only states that condition 1 must be fulfilled. Option B is incorrect because it only states that condition 2 must be fulfilled. Option D is incorrect because both conditions 1 and 2 must be fulfilled for a firm to maximize its profit.