Question

At the profit-maximizing level of output for a perfectly competitive firm

a. average revenue equals average variable cost and price equals marginal cost.
b. price equals marginal cost.
c. price equals average revenue and marginal cost equals average variable cost.
d. marginal revenue equals marginal cost and average total cost equals average fixed cost.

Answer 1

Answer: Option (b) is correct.

Step-by-step explanation:

Correct option: price equals marginal cost.

In a perfectly competitive market and a profit maximizing firm, the profit maximizing level of output is at the point where marginal cost is equal to the price of the product.

In the perfectly competitive market, there are large number of buyers and sellers and price of the product is determined by the market forces.

At, P = MC, firms earns zero economic profit.