The following three conditions must be satisfied if a profit maximizing firm produces positive level of output in a competitive market –

a) The marginal cost should be equal to marginal revenue (MC = MR). It will be called equilibrium output level.

b) The marginal cost should be more than marginal revenue (MC > MR) after equilibrium output level.

c) In short run the prices must be greater than or equal to average variable cost (P ≥ AVC) where as in long run the prices must be greater than or equal to average cost (P ≥ LAC) at equilibrium output level.