The following figure shows the marginal cost curve,the average cost curve,the average variable cost curve,and the demand curve for a firm over different levels of output.The market price is $P.
Figure 9-4
-Refer to Figure 9-4.At a price of $P,the firm will produce the output level _____.
A)OA where marginal cost just covers AVC
B)OB where marginal cost equals the price
C)OC where marginal cost equals ATC
D)OD where the price just covers AVC

Question

The following figure shows the marginal cost curve,the average cost curve,the average variable cost curve,and the demand curve for a firm over different levels of output.The market price is $P.
Figure 9-4 
-Refer to Figure 9-4.At a price of $P,the firm will produce the output level _____.
A)OA where marginal cost just covers AVC 
B)OB where marginal cost equals the price 
C)OC where marginal cost equals ATC 
D)OD where the price just covers AVC

Quizplus · Accepted Answer

The profit-maximizing output level for a firm is where marginal cost (MC) equals marginal revenue (MR), which in perfect competition is equal to the market price (P). In this case, the point where MC intersects the demand curve at price P is point B. At this output level, the firm is able to cover both its variable and fixed costs, as the average total cost (ATC) is lower than the price. This results in positive economic profits for the firm. Therefore, the best choice for the firm is to produce output level OB.

The Following Figure Shows the Marginal Cost Curve,the Average Cost