Which of the following statements about a competitive firm’s profit i…

Which of the following statements about a competitive firm’s profit is NOT correct?

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → Profit is at its maximum at the output where the firm’s total revenue is at its maximum.

Profit rises while MR is above MC, falls while MR is below MC, and is highest where MR = MC. For a competitive firm MR = price, so this becomes price = MC.

Option (1) As long as marginal revenue is less than marginal cost, profit falls as output rises. — True. Each extra unit adds more to cost than to revenue.

Option (2) Profit is at its maximum at the output where the firm’s total revenue is at its maximum. — False. Profit is TR minus TC, so cost matters too. For a price-taker, TR keeps rising with every unit sold, so it has no maximum. Profit is highest where MR = MC.

Option (3) For a competitive firm, the condition MR = MC becomes price = MC. — True. For a price-taking firm, MR = price.

Option (4) As long as marginal revenue is greater than marginal cost, profit rises as output rises. — True. Each extra unit adds more to revenue than to cost.

NCERT (2026-27): “4.3.1 Condition 1 Profits are the difference between total revenue and total cost. Both total revenue and total cost increase as output increases. Notice that as long as the change in total revenue is greater than the change in total cost, profits will continue to increase. Recall that change in total revenue per unit increase in output is the marginal revenue; and the change in total cost per unit increase in output is the marginal cost. Therefore, we can conclude that as long as marginal revenue is greater than marginal cost, profits are increasing. By the same logic, as long as marginal revenue is less than marginal cost, profits will fall. It follows that for profits to be maximum, marginal revenue should equal marginal cost. In other words, profits are maximum at the level of output (which we have called q0) for which MR = MC For the perfectly competitive firm, we have established that the MR = P. So the firm’s profit maximizing output becomes the level of output at which P=MC.”