Why is profits maximised when average cost is equal to marginal cost?

Profits are maximized when average cost (AC) equals marginal cost (MC) because this condition indicates that the firm is producing at an optimal output level. When MC is less than AC, producing additional units decreases average cost, suggesting more output would increase profits. Conversely, if MC exceeds AC, producing more would raise average costs and decrease profits. Therefore, the equilibrium point where AC equals MC is where the firm achieves maximum profitability.