What conditions must hold if a profit-maximising firm produces positive output in a competitive market?
The following three conditions must hold if a profit maximising firm produces positive level of output (say equilibrium output Q*) in a competitive market: 1) MR must be equal to MC at Q*. 2) MC should be upward sloping or rising at Q*. 3) In short run − Price must be greater than or equal to AVC. i.e. P ≥ AVC at Q*. In long run − Price must be greater than or equal to LAC.
