In perfect competition, the profit-maximizing volume is the quantity at which
A) marginal cost equals marginal revenue.
B) marginal revenue exceeds marginal cost.
C) marginal revenue exceeds price.
D) price exceeds marginal cost.

Question

Quizplus · Accepted Answer

In perfect competition, the profit-maximizing volume occurs at the quantity where marginal cost (MC) equals marginal revenue (MR). This is because in perfect competition, the price is set by the market, and the individual firm cannot affect the price by changing its output level. Thus, the firm will produce the quantity of output where the marginal cost of producing an additional unit is equal to the marginal revenue gained by selling that unit. At any other quantity, the firm would either be leaving money on the table by producing at a cost above the revenue, or losing money by producing at a cost above what it can obtain from the market.

In Perfect Competition, the Profit-Maximizing Volume Is the Quantity at Which