A perfectly competitive firm will maximize profits by choosing an output level where
A)Price is greater than marginal cost.
B)Price equals marginal cost.
C)Price equals total cost.

Question

Quizplus · Accepted Answer

A perfectly competitive firm will always choose the output level where price equals marginal cost in order to maximize their profits. If the firm chooses an output level where price is greater than marginal cost, they could increase profits by producing more. Similarly, if the firm chooses an output level where price is less than marginal cost, they could increase profits by producing less. Therefore, the only output level where profits are maximized is when price equals marginal cost.

A Perfectly Competitive Firm Will Maximize Profits by Choosing an Output