It should be clear now that perfectly competitive firms will maximize profits by producing where MC = P. Such price taking behavior is the essence of perfect competition. One important implication of this insight is, that for the individual firm, the MC curve is the firm's supply curve.
As the graph to the right illustrates, whatever market price, the firm will maximize profits by producing where MC = P. Market price is beyond the firm's control, hence it is a price taker, but the firm does choose output.
As we see in the graph, it is possible for the price (demand) to simultaneously be equal to marginal cost at two different points, these points corresponding to two different quantities. When this is the case, at what quantity should the firm produce?
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