Suppose a perfectly competitive firm faces the following short-run cost and revenue conditions: ATC = $7.00; AVC = $5.00; MC = $6.50; MR = $6.50. The firm should

Question

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In a perfectly competitive market, a firm maximizes profit where marginal cost (MC) equals marginal revenue (MR). Here, MC = MR = $6.50, so the firm is producing at the profit-maximizing output level. Since the price (MR) is above AVC, the firm should continue producing.

Suppose a Perfectly Competitive Firm Faces the Following Short-Run Cost