For a perfectly competitive firm,profit maximization occurs when output is such that
A) total revenue (TR) is maximized.
B) total cost (TC) is minimized.
C) marginal revenue (MR) = marginal cost (MC).
D) average total cost (ATC) is minimized.
E) total revenue (TR) equals total cost (TC).

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms are price takers, meaning they cannot influence the price of the product they sell. Therefore, the marginal revenue (MR) curve for a perfectly competitive firm is a horizontal line, and it equals the price of the product. In order to maximize profits, the firm should produce at the point where marginal revenue (MR) equals marginal cost (MC) because at that point, every additional unit produced adds more to revenue than it does to cost. Thus, choice C is the correct option.

For a Perfectly Competitive Firm,profit Maximization Occurs When Output Is