Maximizing Profits in Perfect Competition
In a perfectly competitive market, a firm maximizes its profits by producing at the quantity where marginal cost equals marginal revenue. This can be illustrated through the analysis of total revenue and total cost curves.

Total Revenue and Total Cost Analysis
- Total revenue is the product of quantity sold and price per unit. The total revenue curve is a straight line that starts from the origin and increases at a constant rate.
- Total cost is the sum of fixed costs and variable costs. The total cost curve starts at a positive level due to fixed costs and increases as output increases due to variable costs.

Marginal Analysis
- Marginal revenue is the additional revenue earned from selling one more unit of output. In perfect competition, marginal revenue is equal to the market price.
- Marginal cost is the additional cost incurred from producing one more unit of output. To maximize profits, a firm will produce at the quantity where marginal cost equals marginal revenue.

Individual Firm vs Overall Market
The situation facing an individual firm in perfect competition is closely related to the overall market situation.
- In perfect competition, firms are price takers and have no control over the market price. They must accept the prevailing market price for their product.
- The firm's demand curve is perfectly elastic, meaning that it can sell any quantity at the market price. This leads to the firm producing at the quantity where marginal cost equals marginal revenue.
- The overall market situation is characterized by many small firms producing identical products. The market price is determined by the intersection of market supply and demand curves.
In conclusion, a perfectly competitive firm maximizes its profits by producing at the quantity where marginal cost equals marginal revenue. This decision is based on the analysis of total revenue and total cost curves, and is influenced by the firm's situation in the overall market structure of perfect competition.