Price = oO D | QO o | | | I i i L QO Q a] Or----- Quantity The graph above shows the short-run cost and revenue curves for a perfectly competitive firm. Assume that the market price is Py and the firm is producing at quantity Qo. To maximize profit, the firm should produce quantity Qo, where average variable cost is at its minimum decrease the price so that price equals average variable cost produce quantity Qi, where price is equal to marginal cost continue to produce quantity Q2, where average total cost is at its minimum increase the market price to the level of the minimum average total cost