For a competitive firm, profit maximization occurs when
A)price equals marginal revenue.
B)price equals marginal cost.
C)marginal revenue equals total cost.
D)marginal cost equals total cost.
E)total revenue equals total cost.

Question

Quizplus · Accepted Answer

A competitive firm maximizes profit by producing the quantity where marginal cost equals marginal revenue, and then selling that quantity at the market-determined price. This is because at the profit-maximizing quantity, the marginal revenue from selling one more unit is equal to the marginal cost of producing one more unit, which ensures that the firm is earning the highest possible profit. Therefore, the correct answer is B, where price equals marginal cost.

For a Competitive Firm, Profit Maximization Occurs When