Which of the following expressions is correct for a competitive firm?

• A. MR < MC
• B. TR = TC at profit maximization
• C. P = MC
• D. P < MR

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the context of a competitive firm. In perfect competition, firms are price takers, meaning the price (P) is given and constant for each unit sold.
2. Step 2: Recall the profit maximization condition for a competitive firm. The firm maximizes profit where marginal revenue (MR) equals marginal cost (MC). Since the firm is a price taker, MR equals the market price (P), so the condition is \(P = MR = MC\).
3. Step 3: Analyze each expression given: - \(MR < MC\) implies the firm is producing too much and should reduce output. - \(TR = TC\) means the firm is breaking even, but this is not the condition for profit maximization. - \(P = MC\) is the correct profit-maximizing condition for a competitive firm. - \(P < MR\) cannot be true in perfect competition because \(P = MR\).
4. Step 4: Conclude that the correct expression representing the profit-maximizing condition for a competitive firm is \(P = MC\).
5. Step 5: Remember that this condition ensures the firm is producing the quantity where the cost of producing one more unit equals the revenue gained from selling it, maximizing profit.