A competitive firm maximizes profits when price equals marginal cost.

Name: A competitive firm maximizes profits when price equals marginal cost.
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Question

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A competitive firm aims to maximize profits by setting its output where P=MC. At the price higher than marginal cost, the firm can increase profit by increasing output, while at the price lower than marginal cost, the firm incurs a loss. Therefore, the firm should produce where price is equal to marginal cost to maximize profit.

A Competitive Firm Maximizes Profits When Price Equals Marginal Cost