Economics Profit Maximization Questions
In a perfect competition market, a firm determines its profit-maximizing level of output by equating its marginal cost (MC) with its marginal revenue (MR). This is because in perfect competition, a firm is a price taker and cannot influence the market price. Therefore, the firm will produce the quantity of output where MC equals MR, as this is the point where the additional cost of producing one more unit is equal to the additional revenue generated from selling that unit. At this level of output, the firm maximizes its profits.