To maximize profit a perfectly competitive firm supplies a good up to the point at which:
A)the marginal revenue is higher than the marginal cost.
B)the marginal cost of producing the good is zero.
C)the price of the good equals marginal cost.
D)the average revenue equals average cost.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, price is determined by the market and the firm is a price taker. Therefore, the firm's marginal revenue is equal to the market price. To maximize profit, the firm will produce up to the point at which marginal cost equals the market price (P=MC). At this point, the firm is producing at the minimum average total cost, ensuring maximum profitability. Therefore, as per given options, answer C is correct.

To Maximize Profit a Perfectly Competitive Firm Supplies a Good