Question

The profit-maximizing level of output is determined by which condition?

1) Whenever TR > TC, profit is maximized.
2) Whenever TR < TC, profit is maximized.
3) Whenever TR = TC, profit is maximized.
4) Whenever TR - TC = 0, profit is maximized.

Answer 1

The profit-maximizing level of output in a perfectly competitive firm is determined by the condition where marginal revenue (MR) = marginal cost (MC).

Step-by-step explanation:

The profit-maximizing level of output in a perfectly competitive firm is determined by the condition where marginal revenue (MR) = marginal cost (MC). This is because in perfect competition, the price of a firm's output is equal to its marginal revenue. When MR is greater than MC, the firm can increase its profits by producing more. However, when MR is less than MC, the firm should decrease its production to maximize its profits.