Final answer:
A firm maximizes profit or minimizes loss by comparing total revenue to total cost and marginal revenue to marginal cost.
Step-by-step explanation:
The two ways to determine the level of output at which a firm will realize maximum profit or minimum loss are to compare total revenue to total cost, and to compare marginal revenue to marginal cost. For a perfectly competitive firm, profits will be highest or losses will be smallest when the quantity of output is such that the total revenues exceed total costs by the greatest amount or where total revenues are the least short of total costs. Additionally, a firm will earn the maximum profit or realize minimum loss when the marginal revenue equals marginal cost, which means the additional revenue from selling one more unit equals the additional cost of producing that unit.