For a perfectly competitive firm, profit maximisation occurs when output is such that

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms are price takers meaning they cannot influence the market price of the good they are selling. Therefore, their demand curve is perfectly elastic and they can sell as much as they want at the market price. In order to maximize profit, the firm should produce at the output level where marginal revenue (MR) equals marginal cost (MC). This is because producing one more unit of output adds additional revenue (MR) to the firm, but also incurs additional cost (MC). The firm should continue producing as long as MR is greater than MC, but stop producing when MR equals MC. This ensures that the firm is earning the greatest profit possible given their cost structure.

For a Perfectly Competitive Firm, Profit Maximisation Occurs When Output