Under perfect competition,at the profit maximizing level of output:
A)price is greater than marginal revenue.
B)price is equal to marginal revenue.
C)marginal revenue is equal to zero.
D)the marginal revenue curve is downward sloping.
E)the average revenue curve is upward sloping.

Question

Quizplus · Accepted Answer

In perfect competition, a firm is a price taker, which means it has no control over the price of the product. Thus, the price is determined by the market demand and supply forces. As each unit of output sold by the firm adds a small fraction to the total market output, the marginal revenue of the firm is equal to the price. Therefore, to maximize profits, the firm should produce the output level where marginal cost equals marginal revenue, which is also where price is equal to marginal revenue.

Under Perfect Competition,at the Profit Maximizing Level of Output