firms take two factors into account in determining output (Q*)

The two factors that firms take into account when determining output (Q*) are marginal costs and marginal revenue. Marginal costs represent the cost incurred by the firm to produce each additional unit of output and will usually increase with increased levels of production due to additional labor, material costs, or overhead costs. Marginal revenue, meanwhile, represents the revenue generated by the sale of each additional unit produced and is likely to be lower for higher levels of production due to factors like diminishing marginal returns or market saturation. By balancing these two factors and setting Q* where marginal revenue equals marginal costs, firms are maximizing their profits.