A perfectly competitive firm maximizes its profits by
A)maximizing total revenue.
B)maximizing total sales.
C)choosing the optimal level of output.
D)choosing the optimal price.
E)pricing slightly under its competitors.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, a firm is a price taker, meaning it has no control over the price of the product. Therefore, to maximize profits, it must choose the level of output at which marginal revenue equals marginal cost (MC=MR). This is because producing any additional units beyond this point would result in a decrease in profits. Maximal total revenue or total sales do not necessarily lead to maximum profit, as the firm needs to ensure that its costs do not exceed its revenue. Choosing an optimal price is not possible for a firm in a perfectly competitive market, as it can only accept the market-determined price. Similarly, pricing under competitors is not a viable strategy as profits can only be maximized through efficient production, not undercutting prices.

A Perfectly Competitive Firm Maximizes Its Profits by