CA Foundation · Business Economics · Price Determination in Different Markets
A perfectly competitive firm sells at a market price of ₹40 per unit. Its marginal cost is ₹30 at 500 units, ₹40 at 600 units and ₹50 at 700 units, with MC rising. To maximise profit in the short run, the firm should produce:
The firm should produce 600 units. A perfectly competitive firm maximises profit where price equals rising marginal cost. Here price is ₹40 and MC is ₹40 at 600 units. Producing fewer units forgoes profit, and producing more makes marginal cost exceed price.
- A500 units
- B600 unitsCorrect
- C700 units
- DAny quantity, because price is fixed
Explanation
A competitive firm maximises profit where P = MC with MC rising. MC equals the price of ₹40 at 600 units. At 500 units, P exceeds MC so output expansion adds profit; at 700 units, MC (₹50) exceeds P, so the last units cause a loss.
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