Choosing an output rate at which price equals marginal cost maximizes profits for the perfectly competitive firm because further increases in the output rate would

Question

Quizplus · Accepted Answer

At the output rate where price equals marginal cost, each additional unit of output sold adds the same amount to revenue as it does to cost. If the firm were to increase output beyond this point, the marginal cost would be greater than the marginal revenue, resulting in a decrease in profit. This is because the additional units would increase total cost more than they would add to total revenue, causing profit to decline. Therefore, the firm would choose the output rate where price equals marginal cost to maximize profit.

Choosing an Output Rate at Which Price Equals Marginal Cost