For a perfectly competitive firm, profit maximization occurs when

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the firm is a price taker; thus, it cannot influence the market price. Therefore, marginal revenue (the change in revenue resulting from the sale of one additional unit) is equal to the market price. Profit maximization occurs when marginal revenue equals marginal cost because producing one more unit adds an incremental revenue equal to its market value (marginal revenue), and incremental cost (marginal cost) of production is also taken into account. Thus, when MR=MC, the firm is producing at the point where they are earning the greatest profit possible.

For a Perfectly Competitive Firm, Profit Maximization Occurs When