At the profit-maximizing level of output, a perfectly competitive firm will:

• A. set price above marginal cost
• B. produce where average total cost equals price
• C. produce where marginal cost equals marginal revenue
• D. maximize total revenue regardless of costs

Answer: (C)

Verified step by step guidance

1. Understand the characteristics of a perfectly competitive firm: it is a price taker, meaning the price (P) is given and constant for the firm.
2. Recall the profit-maximizing condition for any firm: produce the quantity where marginal cost (MC) equals marginal revenue (MR). In perfect competition, MR equals the market price (P).
3. Express this condition mathematically as \(\text{MC} = \text{MR} = P\).
4. Recognize that producing where average total cost (ATC) equals price is related to the break-even point, not necessarily the profit-maximizing output.
5. Conclude that the firm will not set price above marginal cost, nor maximize total revenue regardless of costs, but will produce where \(\text{MC} = \text{MR}\) to maximize profit.