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.