Which of the following conditions means that the perfectly competitive firm is maximizing its profits?

Question

Quizplus · Accepted Answer

In a perfectly competitive market, a firm can sell any amount of output at the prevailing market price. Therefore, the marginal revenue (MR) equals the market price (P) for each additional unit sold. In order to maximize profits, a firm will produce at the output level where marginal cost (MC) equals marginal revenue (MC = MR). Since in a perfectly competitive market price equals marginal revenue, this condition can also be interpreted as price being equal to marginal cost (P = MC). Therefore, the correct answer is C. A is incorrect because average revenue does not necessarily equal marginal revenue in a perfectly competitive market. B is incorrect because price equals marginal revenue in a perfectly competitive market, but this alone does not ensure profit maximization. D is incorrect because price being equal to average cost does not necessarily imply profit maximization.

Which of the Following Conditions Means That the Perfectly Competitive