If the market price is $4 and a perfectly competitive firm is producing 500 units and the marginal cost to produce the 500th unit is $5.13, which of the following is true?

Question

Quizplus · Accepted Answer

In a perfectly competitive market, a firm will maximize its profit by producing at a level where its marginal cost is equal to the market price (i.e., where MR=MC). However, in this scenario, the marginal cost to produce the 500th unit is $5.13, which is higher than the market price of $4. This means that the firm would incur a loss of $1.13 for each unit it produces beyond the 499th unit. Therefore, the difference between marginal revenue and marginal cost (MR - MC) for the 500th unit is negative, indicating that the firm should not increase production to maximize profit.

If the Market Price Is $4 and a Perfectly Competitive