If a competitive firm must sell its output at the going price and wants to maximize profits, it should:
A)produce at its zero-profit point.
B)produce where average cost equals price.
C)produce where marginal cost equals price.
D)sell as much as it can produce.
E)none of the above.

Question

Quizplus · Accepted Answer

In order to maximize profits, a competitive firm should produce where its marginal cost (MC) equals the price (P) of the good. At the point where MC=P, the firm is producing the optimal amount of output where it incurs no loss due to producing excess goods and also increases its profit as producing an additional unit would add more to revenue than it would cost to produce. Therefore, choice C is the best option for a competitive firm to maximize its profits.

If a Competitive Firm Must Sell Its Output at the Going