A perfectly competitive firm maximizes its profit when:

Question

Quizplus · Accepted Answer

A perfectly competitive firm maximizes its profit when its marginal revenue is equal to its marginal cost. This is because in perfect competition, the price is determined by the market and the firm has no control over it. Therefore, the firm can only choose the quantity of output to produce. To maximize profit, the firm should produce the quantity at which its marginal revenue is equal to its marginal cost. At this quantity, any increase in output would lead to a reduction in profit, as the marginal cost would exceed the marginal revenue. Similarly, any decrease in output would also lead to a reduction in profit, as the marginal revenue would exceed the marginal cost.

A Perfectly Competitive Firm Maximizes Its Profit When