Asked by Stevi Green on Jun 14, 2024
Verified
To maximize profits,a perfectly competitive firm should produce at an output up to the point where
A) the difference between price and marginal cost is at its maximum.
B) total cost equals total revenue.
C) price equals marginal cost.
D) total revenue equals variable cost.
Marginal Cost
The additional cost incurred in the production of one more unit of a good or service.
Total Revenue
The total amount of money a company receives from its business activities, calculated by multiplying the price of goods or services by the quantity sold.
Total Cost
The aggregate amount of expenses that a company or individual incurs to produce or acquire goods or services.
- Understand the relationship between marginal cost, marginal revenue, and profit maximization
- Determine how output decisions are influenced by cost curves and market price
Verified Answer
SO
Silvia OrtizJun 19, 2024
Final Answer :
C
Explanation :
In a perfectly competitive market, price is determined by the market, and the firm is a price-taker. Therefore, the firm should produce at a level where its marginal cost equals the price. At this level of output, the firm's profit is maximized. If the firm produces at a level where the price is greater than the marginal cost, it can increase its profits by producing more. If the firm produces at a level where the price is less than the marginal cost, it can increase its profits by producing less. Thus, maximizing profits in a perfectly competitive market requires producing at a level where price equals marginal cost.
Learning Objectives
- Understand the relationship between marginal cost, marginal revenue, and profit maximization
- Determine how output decisions are influenced by cost curves and market price