Figure 10-3

-A perfectly competitive firm should continue to expand output until

Question

Figure 10-3
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-A perfectly competitive firm should continue to expand output until

Quizplus · Accepted Answer

A perfectly competitive firm should continue to expand output until marginal revenue equals marginal costs, as this is the point where the firm is maximizing profits. When marginal revenue is greater than marginal costs, the firm can increase profits by producing more output. However, when marginal costs exceed marginal revenue, producing additional units would actually decrease profits. Therefore, the optimal level of output for the firm is the point where these two factors are equal.

Figure 10-3 ​

Figure 10-3