Final answer:
The goal of a firm, according to economists, is to maximize profits, achieved when marginal revenue equals marginal cost. In perfectly competitive markets, this action also ensures allocative efficiency, with firms in the long run tending towards zero economic profits as average costs come to equal market price.
Step-by-step explanation:
Economists generally assume that the primary goal of a firm is to maximize profits. This is not just about increasing total revenue or minimizing total costs independently, but achieving the highest possible difference between the revenue earned and the costs incurred. Profit maximization typically occurs at the point where marginal revenue (MR) equals marginal cost (MC). For a perfectly competitive firm, price equals MR and the firm maximizes profit by producing up to the point where price (P) equals MC.
Perfectly competitive markets maintain a unique position because as firms maximize their profits by producing the quantity where P = MC, they also facilitate allocative efficiency, meaning that the benefits to consumers equal the costs to society of producing the additional units. In the long run, especially in competitive markets, the drive to maximize profits leads to an outcome where firms earn zero economic profits because average cost equals market price.