To maximize expected profit, a perfectly competitive firm with a random marginal cost and known demand should produce at the level that sets _______equal to ________.

Question

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In a perfectly competitive market, firms maximize profit by producing at the level where marginal cost equals marginal revenue. However, when marginal cost is random, the firm should use the expected marginal cost to make this decision, thus setting expected marginal cost equal to marginal revenue.

To Maximize Expected Profit, a Perfectly Competitive Firm with a Random