A perfectly competitive firm will maximize total profits by: a ) Producing all the output it can at any particular price b ) Setting price so that total revenue is at a maximum c ) Setting price so that marginal revenue equals marginal cost d ) Setting price so that price exceeds average total cost by the greatest amount

A perfectly competitive firm will maximize total profits by:
a ) Producing all the output it can at any particular price
b ) Setting price so that total revenue is at a maximum
c ) Setting price so that marginal revenue equals marginal cost
d ) Setting price so that price exceeds average total cost by the greatest amount

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Answer

•             c ) Setting price so that marginal revenue equals marginal cost
  Explanation:
  For a perfectly competitive firm, the profit-maximizing output is the level at which marginal revenue is equal to marginal cost. MR = MC. A firm can seek profit and keep producing as long as marginal revenue is greater than the marginal cost. However, when marginal revenue equals the marginal cost, the firm should recognize that it has already achieved the maximum possible level of economic profit. If the firm continues to produce to levels at which marginal revenue is below marginal cost, then economic profits are declining and production should be reduced.

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