A perfectly competitive firm maximizes profits or minimizes losses in the short-run by producing at the output level at which:
A) marginal revenue equals marginal cost.
B) total revenue equals total cost.
C) total revenue is at a maximum.
D) none of these.

Question

Quizplus · Accepted Answer

A perfectly competitive firm will maximize profits or minimize losses by producing at the output level where marginal revenue equals marginal cost. This is because at this point, the firm is producing an additional unit of output that generates exactly the same amount of revenue as the additional cost of producing that unit, and thus no more profit can be made by producing additional units beyond this point. Total revenue equals total cost at the breakeven output level, but this does not necessarily result in profits or losses. Total revenue is at a maximum at the output level where marginal revenue equals zero, but this point is not necessarily where profits are maximized.

A Perfectly Competitive Firm Maximizes Profits or Minimizes Losses in the Short-Run