If it does not shut down,a perfectly competitive firm produces where marginal cost is equal to the marginal revenue
A) only in the short run.
B) only in the long run.
C) always to maximize its profit.
D) only if it is not possible to produce where price equals average variable cost.
E) only if it is not possible to produce where price is greater than average total cost.

Question

Quizplus · Accepted Answer

A perfectly competitive firm operates to maximize its profit. This implies that the firm produces where its marginal revenue equals its marginal cost, which applies to both the short and long run. This condition ensures that the firm produces efficiently, and that its output level is optimal in terms of profit maximization. The two other options, D and E, are not applicable because a perfectly competitive firm will produce even if the price is above average total cost or if it is possible to produce where price equals average variable cost.

If It Does Not Shut Down,a Perfectly Competitive Firm Produces