what rule should competitive price takers follow when trying to maximize profits?
What rule should competitive price takers follow when trying to maximize profits?
Answer:
Competitive price takers should follow the rule of setting their output where marginal cost equals marginal revenue to maximize profits. In a perfectly competitive market, firms are price takers, meaning they accept the market price as given. To optimize their profits, they should produce at a quantity where their marginal cost (MC) is equal to marginal revenue (MR). This rule ensures that the firm is producing at an efficient level where the cost of producing an additional unit is equal to the revenue gained from selling that unit. By producing where MC = MR, the firm can maximize its profits and operate most effectively in a competitive market.