A firm in a perfectly competitive market is currently producing at a level where its marginal cost equals the market price. If the market price suddenly increases, what should the firm do to maximize its profit?

In a perfectly competitive market, firms aim to maximize their profit by producing where marginal cost equals the market price. If the market price suddenly increases, the firm should analyze its marginal cost in relation to the new price. Since the new price is higher, the firm's marginal cost may still be lower than this price, which means it can increase production to earn more profit. For example, if the price rises from $10 to $15 and the marginal cost of producing an additional unit is still $12, the firm should produce more because it can earn an extra $3 on each additional unit sold. By adjusting production to match the higher price, the firm can maximize its profit.