When will profit-maximizing production decisions drive price to equal marginal cost

Question

Quizplus · Accepted Answer

In a perfectly competitive market where many sellers sell identical products, the market price is determined by the forces of supply and demand. In such a market structure, each seller is a price taker and cannot influence the market price. Therefore, sellers in perfect competition will produce where marginal cost equals price (which is equal to marginal revenue), as they can only sell as much as the market will bear at that price. This result ensures that they earn zero economic profit in the long run.

When Will Profit-Maximizing Production Decisions Drive Price to Equal Marginal