Microeconomics: The Theory of the Firm under Perfect Competition · Class 11 · CBSE · Commerce Economics
State the conditions for short-run profit maximisation by a firm under perfect competition, including the condition under which it shuts down.
Practice question from Microeconomics: The Theory of the Firm under Perfect Competition (Class 11 · CBSE · Commerce Economics), with the correct answer and a step-by-step solution.
medium · Subjective · Q-9039AA
State the conditions for short-run profit maximisation by a firm under perfect competition, including the condition under which it shuts down.
Solution
The profit-maximising condition is , with rising MC ensuring that the condition gives the maximum profit. Under perfect competition, . The shutdown decision depends on whether price can cover minimum AVC in the short run.
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