If a purely competitive firm is producing at some output level less than the profit-maximizing output, then
A)price is necessarily greater than average total cost.
B)fixed costs are large relative to variable costs.
C)price exceeds marginal revenue.
D)marginal revenue exceeds marginal cost.

Question

Quizplus · Accepted Answer

In a purely competitive market, price equals marginal revenue (P=MR), and profit maximization occurs where marginal revenue equals marginal cost (MR=MC). If a firm is producing less than the profit-maximizing output, it means marginal revenue (or price in this context) exceeds marginal cost, indicating that increasing production would increase profit until MR=MC.

If a Purely Competitive Firm Is Producing at Some Output