A firm maximizes profit by producing at the quantity where marginal revenue equals marginal cost. This occurs because: 1) Marginal revenue is the change in total revenue from selling one more unit, while marginal cost is the change in total cost from producing one more unit. 2) When marginal revenue exceeds marginal cost, the firm can increase profits by producing more units. But when marginal cost exceeds marginal revenue, profits decrease with additional production. 3) Therefore, profit is maximized at the quantity where the two margins are equal, as additional production beyond this point leads to losses rather than gains.