Question

Which of the following is true about how a firm in a competitive market decides what level of output to produce in order to maximize its​ profit? A. Produce up to the point where price equals average total cost. B. Produce until marginal cost is furthest above average total cost. C. Produce at the point where price is equal to marginal cost. D. All of the above.

Answer 1

The correct answer is option C.

Step-by-step explanation:

In a perfectly market a firm faces a horizontal line demand curve at the fixed price. This horizontal line represents demand, price line, average revenue, and marginal revenue.

A firm will be able to maximize its profit by producing at the level of output where the price is equal to marginal cost. At this point, the additional cost of producing the last unit is equal to the additional revenue generated from the last unit.