Final answer:
Purely competitive firms use the total-revenue-total-cost approach to maximize profits in the short run by producing the quantity of output where total revenue exceeds total cost by the greatest margin.
Step-by-step explanation:
In the short run, purely competitive firms aim to maximize profit using the total-revenue-total-cost approach. This approach involves comparing total revenue to total cost to determine the level of output that will result in the highest profit.
Total revenue represents the amount of money a firm generates through sales, while total cost includes both fixed costs (costs that do not change with output) and variable costs (costs that vary with output). The goal is to produce the quantity of output where total revenue exceeds total cost by the greatest margin.
For example, if a firm's total revenue is $500 and total cost is $400 for a certain level of output, the firm would maximize profit by producing more output until total revenue reaches $500 and total cost remains at $400. This is because any additional units produced would generate additional revenue without significantly affecting total cost.
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