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

-The only decision that a perfectly competitive firm makes is:
A)what price to charge.
B)what quantity to produce.
C)how much to spend on advertisements.
D)how much to discriminate on the basis of price.
E)how to differentiate its products from its rivals.

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
 
-The only decision that a perfectly competitive firm makes is:
A)what price to charge. 
B)what quantity to produce. 
C)how much to spend on advertisements. 
D)how much to discriminate on the basis of price. 
E)how to differentiate its products from its rivals.

Quizplus · Accepted Answer

A perfectly competitive firm only decides what quantity to produce, as the market determines the price. The firm will produce the quantity where marginal cost intersects with marginal revenue, which is at Q*. This quantity will also lead to minimum average total cost (ATC).

The Figure Given Below Shows the Revenue and Cost Curves