An industry operating in a perfect competitive market situation will maximum profit when

1. Analyze the question The question asks for the condition under which a firm in perfect competition maximizes profit. (It says "industry", but the profit-maximizing rule applies to the firm.)

2. Explain the concept A firm maximizes profit at the output level where the extra cost of producing one more unit equals the extra revenue from selling it:

MC = MR

• If MR > MC, producing one more unit adds more to revenue than to cost, so the firm should expand output.
• If MR < MC, the last unit costs more than it earns, so the firm should cut output.
• At MC = MR, there is no gain from changing output, so profit is at its maximum.

In perfect competition, the firm is a price taker, so price = AR = MR. The condition can therefore also be written as MC = MR = AR (price). The MC curve must also cut the MR curve from below, which is the second-order condition.

3. Check each option

• A. DD < SS: This describes excess supply in the market, which pushes price down. It is not a profit-maximizing condition.
• B. MC > AC: This only means that AC is rising. It says nothing about maximum profit.
• C. MC = MR: This is the standard profit-maximization rule. ✔
• D. MC < AR: This shows the firm is earning some margin on the last unit, but it could still expand output to earn more. Profit is not yet at its maximum.

4. Answer The correct option is C. MC = MR.

5. Exam tip For any "maximum profit" question in Economics, think MC = MR. In perfect competition, remember that P = AR = MR, so MC = MR is the same as MC = Price. In the long run, firms also earn only normal profit, where P = MC = AC.