The perfectly competitive firm maximizes profits by producing at the rate of output where:
A)marginal revenue and marginal cost are equal.
B)marginal revenue exceeds marginal cost by the greatest amount.
C)the profit per unit is the highest.
D)marginal cost is at its minimum.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the firm can only sell its output at the prevailing market price, and thus the firm's marginal revenue is equal to the price of the good. Therefore, the profit-maximizing output level for a perfectly competitive firm is where marginal revenue equals marginal cost (MC), as long as price exceeds average variable cost (AVC). At this output level, the firm earns the maximum level of profit because it is earning a positive profit on each unit sold and cannot increase profit by producing more or fewer units.

The Perfectly Competitive Firm Maximizes Profits by Producing at the Rate