Use the following graph to answer the question. PRICE ($)
МС
• ATC
• AVC
40
25
10
QUANTITY
100
200
300
450
550
If the price a perfectly competitive firm receives for its product is $40, then it should produce which of the
following amounts of output to maximize profit?

300 units

Explanation:

Note: The graph of the question is attached below

A typical perfectly competitive firm will produce where its Marginal Revenue = Marginal Cost and we know that in perfect firm competition, Marginal Revenue = Price. So this firm will maximize profit by producing where Price = Marginal Cost.

In application to the question given, the firm will produce 300 units where Price and MC both are $40.

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