A perfectly competitive firm maximizes profit in the short run by producing the quantity at which:

Question

Quizplus · Accepted Answer

A perfectly competitive firm will maximize profit in the short run by producing the quantity at which marginal revenue (MR) equals marginal cost (MC). This is because, in perfect competition, a firm is a price taker and can sell as much output as it wants at the market price. Thus, the marginal revenue earned by selling an extra unit of output is equal to the market price. The firm will continue to produce as long as the marginal revenue earned from selling an additional unit of output is greater than or equal to the marginal cost of producing that unit. When MR=MC, the firm is producing the quantity that maximizes profit.

A Perfectly Competitive Firm Maximizes Profit in the Short Run