At the profit-maximizing level of output for a perfectly competitive firm,
A)price equals marginal cost.
B)average revenue equals average variable cost, and price equals marginal cost.
C)marginal revenue equals marginal cost, and average total cost equals average fixed cost.
D)price equals average revenue, and marginal cost equals average variable cost.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms are price takers and they have no control over the price. Therefore, in order to maximize their profits, they should produce the level of output where price equals marginal cost (MC). This is because, at any level of output where P > MC, the firm can increase its profit by producing more. On the other hand, at any level of output where P < MC, the firm can increase its profit by producing less. Thus, the profit-maximizing level of output for a perfectly competitive firm is where P = MC.

At the Profit-Maximizing Level of Output for a Perfectly Competitive