All firms maximize profits by producing an output level where marginal revenue equals marginal cost; for firms operating in perfectly competitive industries, maximizing profits also means producing an output level where price equals marginal cost.

Question

Quizplus · Accepted Answer

In perfectly competitive markets, firms maximize profits by producing at an output level where marginal revenue (MR) equals marginal cost (MC), and because the price is given and constant for each firm (due to the nature of perfect competition), this condition also means that price equals marginal cost (P=MC) at the profit-maximizing output.

All Firms Maximize Profits by Producing an Output Level Where