Please I need help with a good answer for this question Than

Please I need help with a good answer for this question, Thanks.

What is the Profit Maximization Rule for a firm in Perfect Competition?

Solution

Perfect competition refers to the market structure comprised of very large number of firms with each firm selling an identical product with free entry and exit of firms in the market.

Each firm in perfectly competitive market is so small that it does not have power to set price or influence price. So, each firm acts as price taker and accept the market price.

However, each firm can sell as much as it can at the given market price.

But while determining how much to sell, a perfectly competitive tries to choose that level of output at which profit can be maximized.

In case of perfectly competitive firm, profit is maximized at the level of output corresponding to which price equals marginal cost.

So,

The Profit Maximization Rule for a firm in perfect competition is to produce that level of output corresponding to which price equals marginal cost.