Perfectly Competitive Firm's Profit Maximizing Output

   Consider the graph for a perfectly competitive firm shown to the right. This firm is producing Q* units of output which is the profit maximizing level of output, since at Q*, MC = P*.

   An important point about profit maximizing behavior is that it doesn't guarantee that the firm earns a profit. It does guarantee that the firm is doing as well as possible economically, but this may simply mean keeping losses as small as possible. Let's examine this graph...

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