Question

1. Perfectly competitive firms maximize profit when A. average costs are minimized
   B. total costs are minimized
   C. average costs equal price

   D. marginal costs equal price

Answer 1

Answer - D) Marginal costs equal price

Perfectly competitive firms maximize profit when its marginal cost equals to the price.

In perfect competition market firms are price takers and they have to sell all the units of the commodity at the same price. Because of this the marginal revenue equals the average revenue or price.

AR (price) = MR

The original equilibrium condition is MR=MC

As the MR equals to price, the profit maximising condition is marginal cost equals to price.