FIGURE 11- 2
-Refer to Figure 11- 2.In diagram A,the profit- maximizing output for a competitive firm is one where

Question

FIGURE 11- 2 
-Refer to Figure 11- 2.In diagram A,the profit- maximizing output for a competitive firm is one where

Quizplus · Accepted Answer

The profit-maximizing output for a competitive firm is where P = AR = MC, as shown in diagram A. This is because in a perfectly competitive market, the firm is a price taker and must accept the market price as given, and thus the marginal revenue (MR) is equal to the price (P). The firm will produce at the point where MC is equal to MR (and therefore P) in order to maximize profits. At this point, the firm's revenue is covering its variable and fixed costs, and any further production would result in a loss. Therefore, the profit-maximizing output is where P = AR = MC.