Provided that there are no external benefits or costs,resources are efficiently allocated for a perfectly competitive firm when:

A) P = MR.
B) P = AVC.
C) P = MC.
D) MC = AVC.

Question

Provided that there are no external benefits or costs,resources are efficiently allocated for a perfectly competitive firm when:A) P = MR.B) P = AVC.C) P = MC.D) MC = AVC.

Carleah Lewis · Accepted Answer

Final Answer : C, Explanation :  In a perfectly competitive market, firms are price takers, so they cannot control the price of their goods. Therefore, to maximize their profits, they should produce at the level where marginal cost (MC) is equal to the market-determined price (P). At this output level, the firm will sell its product at a price that just covers its marginal cost, which means that it is efficient in its use of resources. Therefore, the correct choice is C, which states that at the profit-maximizing output level, P should equal MC.

Provided that there are no external benefits or costs,resources are efficiently allocated for a perfectly competitive firm when:

A) P = MR.
B) P = AVC.
C) P = MC.
D) MC = AVC.

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