The only case where profit-maximising production decisions by firms will drive price to equal marginal cost are when:
A)there are only two sellers
B)many sellers sell products that are slightly differentiated
C)there is only one seller
D)many sellers sell products that are identical

Question

Quizplus · Accepted Answer

In a perfectly competitive market, where there are many sellers selling identical products, firms are price takers and can sell as much as they want at the market price. In this scenario, the profit-maximising production decision for a firm is to produce the quantity where marginal cost equals price, as any deviation from this point would result in lower profits. Therefore, in a perfectly competitive market, price will be driven to equal marginal cost.

The Only Case Where Profit-Maximising Production Decisions by Firms Will