The graph to the right shows a profit maximizing perfectly competitive firm in short-run equilibrium. At output level Q, marginal cost and price are equal, which is equivalent to MR = MC.

   Indeed, as we will see, MR = MC is profit maximizing for any firm in any type of industry, not just perfectly competitive firms. However, it is only in perfect competition where marginal revenue and price are equal so MC = P is profit maximizing behavior for perfectly competitive firms.

Copyright © 1995-2004, Inc. - All Rights Reserved