Profit Maximization requires operating where Marginal Revenue = Marginal Cost. At output Q0 Marginal Revenue = Average Cost, the firm is producing less and charging more than the profit maximizing level. It can increase production and its added cost per unit will be less than its added revenue per unit. This will be true as long as Marginal Revenue is greater than Marginal Cost, so this firm would maximize profits by selling QM at price PM where MR = MC.