A perfectly competitive firm is maximizing profit or minimizing loss if it is producing the quantity at which

Question

Quizplus · Accepted Answer

A perfectly competitive firm maximizes profit or minimizes loss when it produces the quantity at which marginal cost (MC) equals price (P), as long as P is not below the minimum average variable cost (AVC). This is because at the quantity where MC= P, the firm is producing at the lowest possible cost and selling at the highest possible price, maximizing its profit or minimizing its loss. If P is below AVC, the firm would incur a loss on every unit produced, so it would shut down in the short run. Therefore, option A is the correct answer.

A Perfectly Competitive Firm Is Maximizing Profit or Minimizing Loss