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A-Level Economics · Perfect competition (short-run profit) diagram question

Which point is the firm's profit-maximising output in the SHORT RUN?

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The answer

Point B. MC cuts AR = MR at B: output 7. Same rule as every other market structure — MC = MR. Profit-max is always MC = MR. Because the firm is a price taker, MR is the flat £7 line, so the rule becomes MC = price — point B, output 7. At M the firm is producing too little: MC is below MR, so expanding still adds profit.

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This is one of 6 questions on the perfect competition (short-run profit) diagram — every corner lettered, every wrong answer diagnosed.

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