Consider a firm that operates in a perfectly competitive market. The firm is producing at its profit maximizing output level. If this is true, then
A)average revenue is maximized.
B)the firm must be earning a positive economic profit.
C)marginal revenue is greater than the market price.
D)price must be equal to marginal cost.

Question

Consider a firm that operates in a perfectly competitive market. The firm is producing at its profit maximizing output level. If this is true, then
A)​average revenue is maximized.
B)​the firm must be earning a positive economic profit.
C)​marginal revenue is greater than the market price.
D)​price must be equal to marginal cost.

Quizplus · Accepted Answer

In a perfectly competitive market, firms are price takers and must take the market price as given. Therefore, to maximize profits, the firm must produce at the point where marginal cost equals the market price (which is also equal to average revenue). This choice is represented by answer choice D. Answer choice A is incorrect because while average revenue is equal to the market price, it is not necessarily maximized at the profit maximizing output level. Answer choice B is not necessarily true, as the firm could be earning zero economic profit at the profit maximizing output level. Answer choice C is incorrect because in a perfectly competitive market, marginal revenue is equal to the market price.

Consider a Firm That Operates in a Perfectly Competitive Market