Final answer:
In a perfectly competitive market, commercial fishing boat owners in Maine should increase output until marginal cost equals price to maximize profit. The correct answer is B. marginal cost equals price.
Step-by-step explanation:
The student's question pertains to determining the point at which boat owners in the competitive commercial fishing industry along the coast of Maine should increase their output to maximize profit or minimize losses. In a perfectly competitive market, the profit-maximizing condition occurs where marginal revenue (price) is equal to marginal cost. Each perfectly competitive firm, such as the commercial fishing boats, will increase output up to this point.
The correct answer to the student's question is B. marginal cost equals price. This is because, for a perfectly competitive firm, the price at which it sells its output is equal to the marginal revenue from selling an additional unit. Therefore, to maximize its profit, such a firm will produce up to the point where the cost of producing one more unit (marginal cost) is the same as the revenue gained from selling one more unit (price).
When market price is above average cost at the profit-maximizing quantity of output, the firm earns profits. Conversely, the firm incurs losses when the market price is below the average cost at this quantity of output. In the long-run equilibrium, competition in the market will lead to a situation where average cost equals demand, and economic profits are zero due to intense competition.