For a perfectly competitive firm, at profit maximization,
A)market price exceeds marginal cost.
B)total revenue is maximized.
C)marginal revenue equals marginal cost.
D)production must occur where average cost is minimized.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, a firm's profit is maximized at the output level where marginal revenue(MR) equals marginal cost(MC). This is because in perfect competition, firms are price takers and can sell all the output they produce at the market price, which means that their marginal revenue is equal to the market price. Hence, MR = P. To maximize profit, a firm would want to produce at the level where MR=MC. Any level of output where MC>MR would imply that the cost of producing an additional unit of output is more than the additional revenue that would be generated by selling that unit, leading to a reduction in profit. Similarly, any level where MR>MC would imply that it would be profitable to produce more units than would be optimal, leading to a decline in profit. Therefore, in a perfectly competitive market, the profit-maximizing level of output is where MR=MC.

For a Perfectly Competitive Firm, at Profit Maximization