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Perfect competition: Point of profit maximisation

The firm maximises profits if it produces that quantity where the marginal revenue (MR) is equal to the marginal cost (MC). The reason for this is very straightforward. As long as the marginal revenue is greater than the marginal cost, the marginal revenue contributes towards total profits. By producing and selling an additional unit, the producer gains more than it costs to produce the additional unit and its profits increase.
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