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Question
Macroeconomics
Posted 6 months ago

Which of the following best describes the profit-maximizing rule for a perfectly competitive firm?

Choose 1 answer:
(A) Choose the price where its marginal revenue is highest.
(B) Choose the quantity where marginal revenue equals average total cost.
(C) Choose the quantity where marginal cost equals average total cost.
(D) Choose the price where average total cost equals average revenue.
(E) Choose the quantity where marginal cost equals price.
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Answer from Sia
Posted 6 months ago
Solution
a
Profit Maximization Rule: In a perfectly competitive market, a firm maximizes profit by producing the quantity of output where marginal cost (MC) equals marginal revenue (MR). Since the firm is a price taker, MR is equal to the price (P)
b
Incorrect Options: Options A, B, C, and D are incorrect because they either involve choosing a price, which is not possible in perfect competition, or equate MC to ATC or MR to ATC, which are not conditions for profit maximization
Answer
E. Choose the quantity where marginal cost equals price.
Key Concept
Profit Maximization in Perfect Competition
Explanation
In a perfectly competitive market, firms maximize profits by producing at a quantity where the marginal cost of production equals the market price.

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