In Perfect Competition the profit maximizing firm will always operate where P = MC.

    As we show to the right, if the level of output where P = MC is greater than the productively efficient output, Q_PE, firms will be earning profits. In perfect competition profits lead to entry, falling price and falling output until profits are zero and output is Q_PE. If output is below the productively efficient level firms are incurring losses leading to exit, rising price and increasing output until zero profit is reached and output is Q_PE. Thus, market forces guarantee that in long run equilibrium perfectly competitive firms are productively efficient.

Click Here if you don't see topics listed to the left and below.