Question

A firm within a perfectly competitive market can maximize its profit in the short run by producing up to the point where...

a) It reaches the point of diminishing returns.
b) Its marginal cost equals its marginal revenue.
c) It produces at the minimum average total cost.
d) It reaches the point of zero economic profit.

Answer 1

A perfectly competitive firm maximizes short-run profit where marginal cost equals marginal revenue.

Step-by-step explanation:

A firm within a perfectly competitive market can maximize its profit in the short run by producing up to the point where marginal cost equals marginal revenue. This is because profits will be highest at the quantity of output where the firm's total revenues exceed total costs by the greatest amount. Additionally, if the market price is above average cost at the profit-maximizing quantity of output, the firm is making profits, whereas if the market price is below average cost at this point, the firm is making losses.