Suppose a perfectly competitive firm is producing 1,000 units of output and the marginal cost of the 1,000^th unit is $7. If the firm can sell each unit of output for $7 and the firm's revenue is sufficient to cover its variable cost, the firm should:

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the firm should produce at a quantity where marginal cost equals marginal revenue to maximize profit. In this case, the selling price of $7 is equal to the marginal cost of production of $7, indicating that the firm is already producing at the profit-maximizing quantity. Therefore, the firm should not change the level of production and continue producing 1,000 units of output. Any changes in price or production would result in a decrease in profit. Thus, the best choice is to leave production unchanged.

Suppose a Perfectly Competitive Firm Is Producing 1,000 Units of Output