JAMB Economics 2011 Paper

Concept:A perfectly competitive firm maximizes profit in the range where $MC$ is rising and equals $MR$.Explanation:A perfectly competitive firm is a price taker, so each extra unit sold adds the same amount. Hence price equals marginal revenue ($P = MR$).Profit is maximum when marginal cost equals marginal revenue: $MC = MR = P$.This output level is optimal only if the $MC$ curve intersects the $MR$ curve from below, meaning $MC$ must be rising.If $MC$ is falling, increasing output raises profit because each extra unit earns more revenue ($P$) than it adds in cost ($MC$).Consequently, the optimal range of output lies on the upward-sloping portion of the marginal cost curve.Answer:C. MC is rising