The production decisions of perfectly competitive firms follow the principle of economics that states that rational people:

Question

Quizplus · Accepted Answer

Perfectly competitive firms will consider the marginal cost and marginal revenue to determine their optimal production level. They will continue producing until the marginal cost equals the marginal revenue, which maximizes their profits. Therefore, they follow the principle of thinking at the margin. Choice A is incorrect because sunk costs are not relevant to a firm's production decisions. Choice C is incorrect because firms in perfect competition will produce where marginal cost equals marginal revenue, not at the point where price equals average cost. Choice D is incorrect because in perfectly competitive markets, firms can earn zero profit in the short run but continue to operate in the long run, as there are no barriers to exit.

The Production Decisions of Perfectly Competitive Firms Follow the Principle