The correct answer is: C. Distance between MR and MC is maximum.
Profit is the difference between total revenue (TR) and total cost (TC). When TR is greater than TC, the firm makes a profit. When TR is less than TC, the firm makes a loss. When TR is equal to TC, the firm breaks even.
Marginal revenue (MR) is the additional revenue that a firm earns from selling one more unit of output. Marginal cost (MC) is the additional cost that a firm incurs from producing one more unit of output.
A firm maximizes profit when it produces the quantity of output at which MR equals MC. 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.
If the firm produces more output than this, MR will be greater than MC, and the firm will make more profit by producing less output. If the firm produces less output than this, MR will be less than MC, and the firm will make more profit by producing more output.
Therefore, the firm maximizes profit when it produces the quantity of output at which MR equals MC.
Option A is incorrect. The distance between TR and TC is not necessarily related to profit. For example, a firm could have a high TR and a high TC, and still make a loss.
Option B is incorrect. The distance between AR and AC is not necessarily related to profit. For example, a firm could have a high AR and a low AC, and still make a loss.
Option D is incorrect. The distance between MR and MC is the only option that is directly related to profit.