Question

What are the determinants for profit maximization in a competitive market?

Answer 1

In a perfectly competitive market, profit maximisation can be determined by two ways:

a) when TR = TC, where TR is the total revenue which is the revenue earned from the goods produced and TC is the total cost which is the cost incurred when goods are produced.

b) when MR = MC , where MR is marginal revenue which is the additional revenue earned when one more unit of good is produced and MC is marginal cost which is the additional cost incurred when one more unit of good is produced.

Thus, profit maximisation in a competitive market is determined by MR = MC and TR= TC