Final answer:
Total profit is maximized when marginal profit equals zero, which occurs when marginal revenue is equal to marginal cost. This is the optimal output level for a perfectly competitive firm to maximize profits.
Step-by-step explanation:
The student asked at which point total profit is maximized. The correct answer is d) marginal profit equals zero. This is because the profit-maximizing choice for a perfectly competitive firm occurs at the level of output where marginal revenue (MR) is equal to marginal cost (MC). When MR equals MC, any additional unit produced would cost more than the revenue it generates, hence no additional profit is made—marginal profit becomes zero at this point.
To further illustrate, as a perfectly competitive firm increases its output, its total revenue increases at a constant rate due to the market price. However, the firm maximizes profit at the quantity of output where total revenues exceed total costs by the greatest amount, which can also be identified where MR equals MC. If the firm's market price is above average cost at the profit-maximizing quantity, the firm makes profits.
Maximizing Profits
To maximize profits, you should find where price equals marginal cost to determine the optimal output level. Following the numbers will clarify why producing at the point where MR equals MC ensures the highest profit.