The correct answer is: A. Both (A) and (R) are true and (R) is the correct explanation of (A)
A perfectly competitive firm is a price taker, which means that it cannot influence the market price of its product. The market price is determined by the interaction of supply and demand in the market, and the perfectly competitive firm must accept this price.
If a perfectly competitive firm were to charge a price above the market price, it would not be able to sell any of its product, because consumers would simply buy from other firms that are selling at the market price. On the other hand, if a perfectly competitive firm were to charge a price below the market price, it would lose money, because it would be selling its product for less than it costs to produce it.
Therefore, the only price at which a perfectly competitive firm can make a profit is the market price. At this price, the firm’s marginal revenue (MR) is equal to its marginal cost (MC). If the firm were to produce any more or any less output, its MR would be less than its MC, and it would make a loss.
In conclusion, both (A) and (R) are true, and (R) is the correct explanation of (A).