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Question

For a firm in perfect competition, a diagram shows quantity on the horizontal axis and both the firm's Marginal Cost (MC) and its Marginal Revenue (MR) on the vertical axis. The firm's profit-maximizing quantity occurs at the point where the __________.

A
MC curve interects the MR curve from above, going from left to right
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B
slope of the MC curve is zero
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C
MC curve intersects the MR curve from below, going from left to right
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D
MC and MR curve are parallel
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Solution

The correct option is C MC curve intersects the MR curve from below, going from left to right

For profit to be maximized the difference between MR and MC should be zero. If MR > MC it is profitable to increase production and when MR < MC it is profitable to decrease production. And the MC curve should intersect the MR curve from below when it is moving from left to right for maximising profit in absolute terms. (Higher output will lead to larger total revenue).


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