Which of the following is true under perfect competition?
A) Profits are always positive.
B) P MC.
C) P = MR.
D) All of the choices are true for perfect competition.

Question

Which of the following is true under perfect competition?
A) Profits are always positive.
B) P > MC.
C) P = MR.
D) All of the choices are true for perfect competition.

Quizplus · Accepted Answer

Under perfect competition, firms are price takers and cannot affect the market price. Therefore, the marginal revenue (MR) curve of a firm is equal to the market price (P). In the short run, a firm will produce where marginal cost (MC) equals MR (which is also equal to P), so P = MC. Option A is incorrect because in the short run, a firm can make zero profits or even negative profits. Option B is not necessarily true as it depends on the shape of the MC curve. Option D is incorrect because profits can be zero or negative in the short run, and there is no guarantee that P > MC in the long run.

Which of the Following Is True Under Perfect Competition