Answer to Question #186941 in Macroeconomics for glen

Question

State any two(2)ways that firms operating under perfect competition can use to increase their profit since they cannot temper with price and quantity.

Answer 1

Two ways of maximising profit under perfect competition :

i) Producing output at the point where Marginal Revenue equals Marginal Cost.

ii) Producing output at the point where the difference between Total Revenue and Total Cost is maximum.

As stated above in perfect competition since the firms can't change the price level so it can choose only output. To get maximum profit firms have to produce output at the level where marginal revenue is equal to it's marginal cost. Since the firm in the long run earn only normal profit because as the firms start earning abnormal profit other firms enter the market due to which abnormal profit gets eliminated. 

Another way to maximise the profit which is easily understandable. It suggest that firms should produce output at the level where the difference between the total revenue and total cost is maximum. Since profit can be defined as the difference between total revenue and total cost so as the difference between total revenue and total cost will be higher then profit will be automatically maximum.