For any given price, a firm in a competitive market will maximise profit by selecting the level of output in which price intersects the:

Question

Quizplus · Accepted Answer

In a competitive market, firms are price-takers, which means they cannot influence the price of the product they are selling. Therefore, the firm's objective is to maximize profit, which is the difference between total revenue and total costs. To determine the optimal level of output, the firm should look at the intersection of the marginal revenue and marginal cost curves. This is because the marginal revenue curve shows the additional revenue generated from selling one more unit of output, while the marginal cost curve shows the additional cost of producing one more unit. At the point where the curves intersect, the marginal revenue equals the marginal cost, which means the firm is producing the optimal level of output. This output level ensures that the firm is selling goods for a price that covers all costs and generates a maximum profit. Therefore, the correct answer is B – the firm maximizes profit by selecting the level of output in which price intersects the marginal cost curve.

For Any Given Price, a Firm in a Competitive Market