Which of the following options is correct?

Both a perfectly competitive firm and a monopolist

a. maximize profit by setting marginal cost equal to marginal revenue.

b. maximize profit by setting marginal cost equal to average total cost.

c. always earn an economic profit.

d. are price takers.

Both a perfectly competitive firm and a monopolist a. maximize profit by setting marginal cost equal to marginal revenue.

Marginal revenue is the additional benefit received from consuming one more output and marginal cost is the additional cost incurred from producing one more output. Both firms will continue to produce output until the marginal revenue equals marginal cost. If the firms produce further than the level of profit maximization, they will incur losses because the marginal cost exceeds marginal revenue. Monopolists are price searchers and they always earn an economic profit since their price is greater than the marginal revenue. On the other hand, perfectly competitive firms are price takers and they have zero economic profit in the long-run.