If a perfectly competitive firm is a profit-maximizer, it produces where
A) MR MC
B) P MR
C) P = MC
D) TR = TC

Question

If a perfectly competitive firm is a profit-maximizer, it produces where
A) MR > MC
B) P > MR
C) P = MC
D) TR = TC

Quizplus · Accepted Answer

In a perfectly competitive market structure, the firm is a price taker, meaning it has no control over the market price. Therefore, it can only choose the quantity to produce, but not the price. The profit-maximizing production decision for a competitive firm is to produce where marginal cost (MC) equals price (P), since at this output level the firm earns the highest possible difference between total revenue (P multiplied by quantity sold) and total cost (MC multiplied by quantity produced). Any output level above or below this point would lead to lower profits. Therefore, the correct choice is C: P = MC.

If a Perfectly Competitive Firm Is a Profit-Maximizer, It Produces