The equilibrium of a firm under perfect competition will be determined when

Question

Write any two reasons why prices of products vary in one shop as compared to another shop.

Answer 1

Use the universal profit-maximisation rule that applies to every firm, competitive or not.

MC greater than AC: this is simply true for a whole range of output once diminishing returns set in, it doesn't identify one specific equilibrium point.
MR greater than AC: comparing marginal revenue to average cost tells you about profit per unit, not the profit-maximising output.
MR greater than AR: for a perfectly competitive firm, price (AR) is constant and always equal to MR, so this condition never actually holds.
MR equals MC: whatever the market structure, a firm keeps producing extra units as long as the revenue from the next unit exceeds its cost, and stops exactly where the two become equal, this is the equilibrium output.

So the firm settles at the output where Marginal Revenue equals Marginal Cost, making option D correct.

Answer 2

Use the universal profit-maximisation rule that applies to every firm, competitive or not.

MC greater than AC: this is simply true for a whole range of output once diminishing returns set in, it doesn't identify one specific equilibrium point.
MR greater than AC: comparing marginal revenue to average cost tells you about profit per unit, not the profit-maximising output.
MR greater than AR: for a perfectly competitive firm, price (AR) is constant and always equal to MR, so this condition never actually holds.
MR equals MC: whatever the market structure, a firm keeps producing extra units as long as the revenue from the next unit exceeds its cost, and stops exactly where the two become equal, this is the equilibrium output.

So the firm settles at the output where Marginal Revenue equals Marginal Cost, making option D correct.

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