Figure 7-2 shows the relationship among the various costs of a perfectly competitive firm. Suppose the market price equals $88 and the firm is currently producing 600 units of output. In this situation, the firm:Figure 7-2

Question

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At the current output level of 600 units, the firm's marginal cost (MC) is equal to marginal revenue (MR), which is also equal to the market price of $88. This means that the firm is producing where it maximizes its profits, as shown by the intersection of the MC and MR curves on the graph. In this situation, the firm is earning positive economic profits, as its total revenue (TR) exceeds its total cost (TC), including both fixed and variable costs. Therefore, the best choice is A, as the firm is already maximizing its profit.

Figure 7-2 Shows the Relationship Among the Various Costs of a Perfectly