If production is occurring where marginal cost exceeds price, the purely competitive firm will
A)maximize profit, but resources will be underallocated to the product.
B)maximize profit, but resources will be overallocated to the product.
C)fail to maximize profit and resources will be overallocated to the product.
D)fail to maximize profit and resources will be underallocated to the product.

Question

Quizplus · Accepted Answer

In a purely competitive market, profit maximization occurs where marginal cost equals price. If marginal cost exceeds price, the firm is not maximizing profit because it costs more to produce an additional unit than the revenue gained from selling it. This leads to overallocation of resources to the product, as resources are being used inefficiently to produce goods that do not cover their production costs.

If Production Is Occurring Where Marginal Cost Exceeds Price, the Purely