Economics Perfect Competition Questions
In perfect competition, profit maximization refers to the goal of a firm to maximize its profits by producing at a level where marginal cost (MC) equals marginal revenue (MR). This occurs when the additional cost of producing one more unit (MC) is equal to the additional revenue earned from selling that unit (MR). At this point, the firm is producing the optimal quantity of output where it can maximize its profits. If the firm produces less than this level, it can increase its profits by producing more. Conversely, if the firm produces more than this level, its costs will exceed its revenue, resulting in lower profits. Therefore, in perfect competition, profit maximization is achieved by producing at the level where MC = MR.