The table shows the cost and revenue information for a perfectly competitive firm. If the market price is equal to the firm's marginal cost at an output level of 100 units, what should the firm do to maximize profit?

• A. Produce more than 100 units
• B. Produce less than 100 units
• C. Shut down production immediately
• D. Produce exactly 100 units

Answer: (D)

Verified step by step guidance

1. Understand that in a perfectly competitive market, the firm maximizes profit by producing the quantity where marginal cost (MC) equals the market price (P). This is because the firm is a price taker and can sell any quantity at price P.
2. Identify the output level where the firm's marginal cost equals the market price. According to the problem, this occurs at 100 units.
3. Recall the profit maximization rule: produce the quantity where \(P = MC\). Producing more than 100 units would mean \(MC > P\), leading to higher costs than revenue for additional units, reducing profit.
4. Producing less than 100 units would mean \(MC < P\), so the firm is missing out on profitable units that could increase total profit.
5. Shutting down is only optimal if the price is below average variable cost, which is not indicated here. Since \(P = MC\) at 100 units, the firm should produce exactly 100 units to maximize profit.