The Theory Of The Firm Under Perfect Competition

Quickly browse through questions and notes on related topics. You can also download and read this topic offline.

• Questions
• Summary

Producer's Equilibrium (Profit Maximisation): A perfectly competitive firm maximises profits, i.e. attains producer's equilibrium when price is equal to marginal cost. P = MC (Condition of firm's equilibrium).
   Graphically, a competitive firm's profit is maximized at the point where price line intersects MC curve.

A competitive firm faces the market price P i.e. PE is the price line and its marginal cost curve is denoted by MC. A competitive firm’s profit is maximized at the point where the price line intersects the MC curve i.e. P = MC (i.e. at point Q) with P denoting the market price. This the profit maximizing condition or the condition for producer’s equilibrium.