At its current level of quantity, a perfectly competitive firm's marginal revenue is $3.25, its short- run marginal cost is $3.25 and its long- run marginal cost is $3.00. Which of the following statements is true?

Question

Quizplus · Accepted Answer

In order to maximize short-run profit, a firm should produce at the quantity where short-run marginal cost equals marginal revenue. Since the marginal cost and marginal revenue are both $3.25, the firm is already producing at the profit-maximizing quantity. However, in the long-run, the firm should aim to produce at the quantity where long-run marginal cost equals marginal revenue. Since the long-run marginal cost is lower than the current price, the firm has an incentive to decrease production in the long-run to increase profit. Therefore, the firm is maximizing its short-run profit, but not its long-run profit.

At Its Current Level of Quantity, a Perfectly Competitive Firm's