Question

What is the profit-maximising condition of a producer (firm)?

Answer 1

The profit-maximising condition of a producer (firm) is that Marginal Revenue (MR) must equal Marginal Cost (MC), and the MC curve must cut the MR curve from below (i.e., MC should be rising at the point of intersection). This ensures that the firm is earning the highest possible profit. Additionally, in the short run, the firm should continue to produce only if Price (P) or Average Revenue (AR) is greater than or equal to Average Variable Cost (AVC) to avoid shutdown.