In order to maximize profit,a perfectly competitive firm should select the level of output where

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms are price takers, meaning they cannot influence the market price. Therefore, the marginal revenue curve is the same as the demand curve, which is perfectly elastic or horizontal. Thus, a perfectly competitive firm should produce where its marginal cost equals its marginal revenue, as this is the level of output where it maximizes its profits. At any output level where marginal cost is less than marginal revenue, the firm can increase its profit by producing more. Conversely, at any output level where marginal cost is greater than marginal revenue, the firm can increase its profit by producing less. Hence, B is the correct choice as it ensures that the firm is producing at the profit-maximizing level.

In Order to Maximize Profit,a Perfectly Competitive Firm Should Select