Question

What two rules does a perfectly competitive firm apply to determine its profit-maximizing quantity of output?

Short answer

Perfect Competition, Rules for profit maximising output : Maximum Gap between Total Revenue & Total Cost ; Marginal Revenue = Marginal Cost

Step-by-step solution

Perfect Competition Definition 

It is a market, where large number of buyers and sellers exchange homogeneous goods at constant prices.

Profit Maximisation Concept  

Profit is the difference between Total Revenue and Total Cost.

Output at which profit is maximised satisfies following conditions

• Difference between total revenue and total cost curves is maximum. Slopes of both the curves are equal.
• Marginal Revenue = Marginal cost, and the curves intersect.