A perfectly competitive firm will maximize its profit at the rate of output where the vertical distance between its total revenue curve and total cost curve is the largest.This is the same rate of output where

Question

Quizplus · Accepted Answer

A perfectly competitive firm will always produce where marginal cost equals marginal revenue in order to maximize profit. Therefore, the rate of output where marginal revenue equals marginal cost will also be the same rate of output where the vertical distance between total revenue and total cost is the largest. Choice A is incorrect because it suggests that average total cost should be equal to marginal revenue, which is not relevant for profit maximization in a perfectly competitive market. Choice B is incorrect because there is no such thing as marginal profit in economics. Choice D is also incorrect because marginal revenue will always be less than (or equal to) average revenue in a perfectly competitive market.

A Perfectly Competitive Firm Will Maximize Its Profit at the Rate