If a perfectly competitive firm is producing 500 units of output and the marginal revenue from producing the 500th unit of output is $4 and the marginal cost is $3.50, which of the following is true?

Question

Quizplus · Accepted Answer

Since the marginal revenue ($4) from producing the 500th unit is greater than the marginal cost ($3.50), the firm can increase its profit by producing more. This is because, in a perfectly competitive market, profit maximization occurs where marginal revenue equals marginal cost.

If a Perfectly Competitive Firm Is Producing 500 Units of Output