Question : The equilibrium of a firm under perfect competition will be determined when:
Option 1: Marginal Revenue > Average cost
Option 2: Marginal Revenue > Average Revenue
Option 3: Marginal Revenue = Marginal cost
Option 4: Marginal cost > Average cost
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Correct Answer: Marginal Revenue = Marginal cost
Solution : The correct option is Marginal revenue = Marginal cost .
In a perfectly competitive market, firms are price takers, meaning they have no control over the market price. They can sell as much as they want at that price. The firm's equilibrium point is where the additional revenue from selling one more unit is exactly equal to the additional cost of producing that unit.
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