Suppose a perfectly competitive firm is producing 1,000 units of output and the marginal cost of the 1,000ᵗʰ unit is $7. If the firm can sell each unit of output for $7 and the firm's revenue is sufficient to cover its variable cost, the firm should:

Question

Quizplus · Accepted Answer

Firms should expand output until price is equal to marginal cost. In this case, price equals marginal cost, so the firm is maximizing its profits (provided its revenue is sufficient to cover its variable cost).

Suppose a Perfectly Competitive Firm Is Producing 1,000 Units of Output