When a perfectly competitive firm is at its profit- maximizing level of output, it
A) is producing where MC = AC.
B) is producing where P = AVC.
C) may be making a profit or incurring a loss.
D) is doing as well as it can and is making a profit.
E) is producing where price exceeds marginal cost.

Question

Quizplus · Accepted Answer

In perfect competition, a firm maximizes profit where marginal cost (MC) equals marginal revenue (MR), which is also the price (P). At this point, the firm may be making a profit if price is above average total cost (ATC), or incurring a loss if price is below ATC.

When a Perfectly Competitive Firm Is at Its Profit- Maximizing