A firm in a perfectly competitive industry will maximize profits by adjusting
A)price until marginal revenue equals marginal cost.
B)output until marginal cost equals marginal revenue.
C)price until average revenue equals average total cost.
D)output until average revenue equals short-run average total cost.
E)average total cost until it equals price.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the firm is a price taker and can sell as much output as it wishes at the market price. Therefore, the firm should produce where marginal cost equals marginal revenue to maximize profits as producing any other level of output would either result in losses or forego potential profits.

A Firm in a Perfectly Competitive Industry Will Maximize Profits