A perfectly competitive firm will maximize profits when

Question

Quizplus · Accepted Answer

A perfectly competitive firm will always aim to produce at the point where marginal cost equals marginal revenue, as this will allow the firm to maximize its profits. If it were to produce at a point where marginal cost is greater than marginal revenue, then producing one more unit would cost more than the revenue generated, meaning the firm is better off not producing that unit. Similarly, if it were to produce at a point where marginal revenue is greater than marginal cost, then producing one more unit would generate more revenue than the cost, meaning the firm should produce more to increase its profits. Therefore, the only option where a perfectly competitive firm will maximize its profits is when marginal cost is equal to marginal revenue.

A Perfectly Competitive Firm Will Maximize Profits When