economic profits. It’s true that profit is the same at Q = 70 and Q = 80, but it’s only when the firm goes beyond

that Q that it will see that profits fall. Thus, MR = MC is the signal to stop expanding, so that is the level of output

they should target.

Because the marginal revenue received by a perfectly competitive firm is equal to the price P, we can also write

the profit-maximizing rule for a perfectly competitive firm as a recommendation to produce at the quantity of

output where P = MC.

Profits and Losses with the Average Cost Curve

Does maximizing profit (producing where MR = MC) imply an actual economic profit? The answer depends on

the relationship between price and average total cost, which is the average profit or profit margin. If the

market price is higher than the firm's average cost of production for that quantity produced, then the profit

margin is positive and the firm will earn profits. Conversely, if the market price is lower than the average cost
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