Question

Explain why it is true that for a firm in a perfectly competitive​ market, the​ profit-maximizing condition MR​ = MC is equivalent to the condition P​ = MC. When maximizing​ profits, MR​ = MC is equivalent to P​ = MC because _______

Answer 1

$\bold{MR = P}$ is equivalent to both of the given conditions in a fully competitive market.

Explanation:

In profit maximization, $MR = MC$ corresponds to $P = MC$ since, for a fully competitive product, the marginal revenue curve is the same as its demand. If a company produces during this level, marginal income is lower than marginal cost.

This ensures that for each additional production unit, the company loses profit and should deliver less. $MR > MC$ the company produces less and may increase income by higher output.

To sum up, $MR > MC$ the company produces less and can make profit by increasing production $MR < MC$ the company produces more and can earn a profit by reducing the output.