Answer to Question #136765 in Microeconomics for Jennifer

Question

With the help of a diagram, explain the marginal profit rule for a company under perfect competition

Answer 1

Marginal profit is the profit earned by a firm when an additional unit is being sold. Usually marginal profit is given by the difference between marginal cost and marginal product( Marginal revenue).

To maximize profit perfectly competitive firms equates marginal revenue and marginal cost.

For perfectly competitive firm, the marginal revenue curve is perfectly elastic or horizontal line as shown below.