The figure given below shows the revenue and cost curves of a firm. MC represents the marginal cost curve, AC the average cost curve, MR the marginal revenue curve, and AR the average revenue curve.Figure 9.4

-Under perfect competition, at the profit-maximizing level of output:
A)price is greater than marginal revenue.
B)price is equal to marginal revenue.
C)marginal revenue is equal to zero.
D)the marginal revenue curve is upward sloping.
E)the average revenue curve is upward sloping.

Question

The figure given below shows the revenue and cost curves of a firm. MC represents the marginal cost curve, AC the average cost curve, MR the marginal revenue curve, and AR the average revenue curve.Figure 9.4
 
-Under perfect competition, at the profit-maximizing level of output:
A)price is greater than marginal revenue. 
B)price is equal to marginal revenue. 
C)marginal revenue is equal to zero. 
D)the marginal revenue curve is upward sloping. 
E)the average revenue curve is upward sloping.

Quizplus · Accepted Answer

Under perfect competition, a firm is a price taker, meaning it cannot influence the market price. Therefore, the price is equal to the marginal revenue (MR) curve. The profit-maximizing level of output is where marginal cost (MC) equals marginal revenue (MR), which is at point E in the graph. At this point, the firm produces Q* units of output and charges the market price P*. Since the price is equal to MR, which is constant under perfect competition, the price is also equal to P*. Therefore, the correct answer is B.

The Figure Given Below Shows the Revenue and Cost Curves