How is the output determined for profit maximization under perfect competition in the short run.

The volume that a firm should produce for profit
maximization can be determined in several ways. The best way to do this is by
determining the marginal cost and the marginal revenue curves. The corresponding volume
where the two curves intersect is where profit maximization is
achieved.

In the case of perfect competition marginal
revenue is a horizontal line. This happens as there are theoretically an infinite number
of producers. A firm operating under these conditions has to consider its marginal cost
curve. The marginal cost curve is usually one that is concave. Marginal cost first
decreases due to the economies of scale and after a certain volume, when diseconomies of
scale set in, it starts to move up again.

Profit is
maximized where the volume produced is such that marginal revenue and marginal cost are
equal. Here the difference between total revenue and total cost is also the
largest.