If a perfectly competitive firm produces at an output level where marginal cost equals marginal revenue,then
A)the last unit produced adds the same amount to costs as it does to revenue.
B)the firm is maximizing its revenue.
C)there is no reason to reduce or expand output,as long as AVC is greater than or equal to price.
D)the difference between TR and TC is zero.
E)the firm should shut down.

Question

Quizplus · Accepted Answer

If a perfectly competitive firm produces at an output level where marginal cost equals marginal revenue, it means that the firm is producing the last unit at a cost that is equal to the revenue it generates. Therefore, the last unit produced adds the same amount to costs as it does to revenue (option A). This is the profit-maximizing output level for the firm as, at this point, any further increase or decrease in output would result in a reduction in profit. Therefore, it is not necessary to reduce or expand output as long as the average variable cost (AVC) is greater than or equal to price (option C). The difference between total revenue (TR) and total cost (TC) would be positive and equal to profit (option D), indicating that the firm is earning a profit at this output level. Shutting down would not be a feasible option as the firm is already producing at a profit-maximizing level (option E). Option B is not correct as the firm is not necessarily maximizing its revenue but rather its profit.

If a Perfectly Competitive Firm Produces at an Output Level