A firm in a perfectly competitive market can maximize its profits by:

Question

Quizplus · Accepted Answer

In a perfectly competitive market, a firm can sell all of its output at the prevailing market price, so its marginal revenue is equal to the price. Therefore, the profit-maximizing level of output occurs where marginal cost (MC) equals marginal revenue (MR), which is also the point where the firm's supply curve intersects the market demand curve. At this output level, the firm will be producing at the lowest possible cost and selling at the highest possible price, resulting in maximum profits. Choices B and C are incorrect because producing at any level other than where MC=MR will result in lower profits. Choice D is also incorrect because producing at capacity may be inefficient and not necessarily the profit-maximizing level of output.

A Firm in a Perfectly Competitive Market Can Maximize Its