The perfectly competitive, profit-maximizing rate of production

Question

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In a perfectly competitive market, firms are price-takers and face a horizontal demand curve, meaning that they cannot influence the market price. Therefore, the profit-maximizing rate of production occurs where marginal revenue is equal to marginal cost, as producing more or less would lead to a decreased profit. Choosing B is incorrect as it suggests that the firm should produce where the difference between marginal revenue and marginal cost is the highest, which is not necessarily the profit-maximizing output level. Choosing C is incorrect as the profit-maximizing rate of production is measurable and calculable. Choosing D is incorrect as the profit-maximizing rate of production takes into account both total revenues and total costs as it maximizes profits, which is the difference between total revenues and total costs.

The Perfectly Competitive, Profit-Maximizing Rate of Production