Question

If firms are price takers, then?

1) they will produce where price equals average variable cost.
2) they will produce where price equals marginal cost.
3) they will earn zero economic profit.
4) they will have market power.
5) they will produce where marginal revenue is less than marginal cost.

Answer 1

Firms that are price takers will produce where price equals marginal cost in a perfectly competitive market.

Step-by-step explanation:

If firms are price takers, then they will produce where price equals marginal cost. This is because in a perfectly competitive market, firms are price takers, meaning they have no market power and must accept the market price. Therefore, they will produce at the quantity of output where their marginal cost is equal to the market price.