Q. A competitive firm maximizes its profit when _______?
Answer: MR=MC
Notes: A competitive firm maximizes its profit when its marginal revenue equals its marginal cost. Marginal revenue is the additional revenue earned by the firm from selling an additional unit of output. When marginal revenue equals marginal cost, the firm is earning the maximum possible profit. The marginal cost of production and marginal revenues are two determinants used to analyze the profitability of the production. When the marginal cost is below the marginal revenue, the firm can increase its revenue by producing more. When a competitive firm maximizes profit, profits are always greater than 0.
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