The correct answer is A. Marginal revenue.
A perfectly competitive firm is a price taker, which means that it cannot influence the market price of its product. The firm’s marginal revenue is equal to the market price, and the firm maximizes its profit by producing output at which marginal revenue equals marginal cost.
Average revenue is equal to the market price divided by the quantity produced. Average variable cost is equal to total variable cost divided by the quantity produced. Average fixed cost is equal to total fixed cost divided by the quantity produced.
A perfectly competitive firm will not produce at an output level where marginal cost is greater than average variable cost, because it would be losing money on each unit produced. A perfectly competitive firm will also not produce at an output level where marginal cost is less than average revenue, because it could make more money by producing more units. Therefore, the only output level where a perfectly competitive firm will maximize its profit is at the output level where marginal cost equals marginal revenue.