The correct answer is option 1: rising
- Under perfect competition, a firm's equilibrium occurs where Marginal Revenue (MR) = Marginal Cost (MC).
- However, for this to be a profit-maximizing condition, MC must be rising at the equilibrium point.
Why?
- If MC is falling, producing more units would further decrease costs, meaning the firm is not yet at the profit-maximizing level.
- If MC is constant, it is a rare case and does not indicate a unique profit-maximizing point.
- MC must be rising so that any additional production beyond this point leads to higher marginal cost than marginal revenue, discouraging further production.
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