This graph represents the cost and revenue curves of a firm in a perfectly competitive market. According to the graph shown,the long-run output decision for this firm is:

Question

This graph represents the cost and revenue curves of a firm in a perfectly competitive market.  According to the graph shown,the long-run output decision for this firm is:

Quizplus · Accepted Answer

In the long run, a perfectly competitive firm will choose to produce at the output level where marginal cost equals marginal revenue, which is the intersection of the marginal cost and marginal revenue curves. In this case, that occurs at Q2. At Q1, marginal cost is greater than marginal revenue, meaning the firm is producing more than it should, resulting in a loss. At Q3, marginal revenue is less than marginal cost, meaning the firm should be producing more to maximize profit. Therefore, the best choice for the firm is to produce Q2 at a price of P1.

This Graph Represents the Cost and Revenue Curves of a Firm