Questions: Question 22 2 pts In a perfectly competitive market, each firm produces at a quantity where price is set equal to marginal cost, in the short run. equal to marginal cost, both in the short run and in the long run. equal to average cost, in the long run. equal to average cost, both in the short run and in the long run.

The answer is B: equal to marginal cost, both in the short run and in the long run.

Explanation for each option:

A. Equal to marginal cost, in the short run.

• This is partially correct. In a perfectly competitive market, firms do produce where price equals marginal cost in the short run. However, this option does not account for the long run, making it incomplete.

B. Equal to marginal cost, both in the short run and in the long run.

• This is correct. In a perfectly competitive market, firms produce where price equals marginal cost in both the short run and the long run. This is because firms are price takers and will adjust their output to the point where the price of the product equals the marginal cost of production to maximize profit.

C. Equal to average cost, in the long run.

• This is incorrect. While it is true that in the long run, firms in a perfectly competitive market will produce at a point where price equals average cost (ensuring zero economic profit), this option does not address the short run where price equals marginal cost.

D. Equal to average cost, both in the short run and in the long run.

• This is incorrect. In the short run, firms produce where price equals marginal cost, not average cost. In the long run, firms produce where price equals both marginal cost and average cost, but this option incorrectly suggests that average cost is the determining factor in both time frames.

In summary, the correct answer is B because it accurately reflects the condition that in a perfectly competitive market, firms produce where price equals marginal cost in both the short run and the long run.