For a perfectly competitive firm, short-run equilibrium is determined by:
A) the point where P = MC.
B) the point where P = ATC.
C) the point where P = AVC.
D) the point where MC = ATC.

Question

Quizplus · Accepted Answer

In the short-run, a perfectly competitive firm's profit maximization occurs where marginal cost (MC) equals marginal revenue (MR), given that price (P) is equal to MR in a perfectly competitive market. This means that the firm will produce at the point where P = MC, which will also be the minimum point on the average variable cost (AVC) curve. Therefore, option A is correct. Options B and C are incorrect because ATC and AVC curves only indicate the average costs of production, and they do not affect the firm's profit-maximizing decisions. Option D is also incorrect because it refers to the long-run equilibrium and not the short-run equilibrium.

For a Perfectly Competitive Firm, Short-Run Equilibrium Is Determined By