The perfectly competitive firm maximizes profits when

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the firm is a price-taker, meaning that it cannot influence the market price. Therefore, the firm should produce and sell the quantity at which marginal revenue (MR) equals marginal cost (MC) to maximize profits. This is because MR represents the additional revenue earned by the firm from selling one more unit, while MC represents the additional cost incurred by the firm from producing one more unit. If MR > MC, the firm can increase profits by producing and selling more units, while if MR < MC, the firm can increase profits by producing and selling fewer units. Only when MR = MC is the firm earning the highest possible profit for that level of output.

The Perfectly Competitive Firm Maximizes Profits When