Refer to Figure 23.5 for a perfectly competitive firm.This firm will maximize profits by producing the level of output that corresponds to point
A) A.
B) B.
C) C.
D) D

Question

Refer to Figure 23.5 for a perfectly competitive firm.This firm will maximize profits by producing the level of output that corresponds to point
A) A. 
B) B. 
C) C. 
D) D

Quizplus · Accepted Answer

The perfectly competitive firm will maximize profits by producing the level of output where MC (marginal cost) equals MR (marginal revenue) which corresponds to point B in the given figure. At point B, the firm produces Q* quantity of output at a price P*. Any output level less than Q* will result in lower profits while any output level greater than Q* will result in higher costs than revenue leading to lower profits. Therefore, point B is the profit-maximizing level of output for the perfectly competitive firm.