A perfectly competitive firm maximizes profits or minimizes losses in the short-run by producing at the output level at which:

Question

Quizplus · Accepted Answer

A perfectly competitive firm will maximize profits or minimize losses in the short-run by producing at the output level at which marginal revenue equals marginal cost. This is because in a perfectly competitive market, the firm is a price taker and the price is set by the market. Therefore, the firm cannot increase the price it charges for its product, and must instead focus on producing at the level where marginal revenue equals marginal cost in order to maximize profits or minimize losses. Producing at any other output level would result in lower profits or greater losses.

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