Question

A perfectly competitive firm faces a price of 10 and is currently producing a level of output at which marginal cost is equal to 10 on a rising portion of its short-run marginal cost curve.

Question: What is the condition for profit maximization for a perfectly competitive firm in the short run?
a) Marginal cost equals marginal revenue
b) Marginal cost equals average total cost
c) Marginal cost equals the price
d) Average revenue equals average cost

Answer 1

The profit-maximizing condition for a perfectly competitive firm in the short run is that marginal cost equals the price. The firm chooses its output level where price (which is equivalent to marginal revenue) is equal to marginal cost to maximize profit.

Step-by-step explanation:

The profit-maximizing condition for a perfectly competitive firm in the short run is that marginal cost equals the price (option c). A perfectly competitive firm chooses its output level where price (which is equivalent to marginal revenue) is equal to marginal cost. This is because the firm wants to produce at the level where the additional cost of producing one more unit is equal to the additional revenue gained from selling that unit. By producing at this level, the firm maximizes its profit.