Assume that price is greater than average variable cost.If a perfectly competitive firm is producing at an output where price is $114 and the marginal cost is $102, then the firm is probably producing more than its profit-maximizing quantity.

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In a perfectly competitive market, a firm maximizes profit by producing where price equals marginal cost (P=MC). Since the price ($114) is greater than the marginal cost ($102), the firm should increase production to maximize profit.

Assume That Price Is Greater Than Average Variable Cost