Why do perfectly competitive firms maximize their profits by producing so that the price is equal to marginal cost, but monopolists maximize their profits by setting a price that is greater than marginal cost?
What will be an ideal response?
Both types of firms maximize profits by producing so that their marginal revenue equals their marginal cost. For perfect competitors, price also equals marginal revenue, and therefore, at maximum profits, price equals marginal cost.
You might also like to view...
Tobacco could not be grown in England. It could only be produced in the colonial South
Indicate whether the statement is true or false
In the short run, the aggregate supply curve reacts to:
A. wage warfare. B. cartels. C. price ceilings. D. price changes.
In the equation of exchange, the level of aggregate expenditures is indicated by:
A. MV. B. MV/Q. C. PM. D. MV/P.
The monopoly maximizes profit by setting
A) price equal to marginal cost. B) price equal to marginal revenue. C) marginal revenue equal to marginal cost. D) marginal revenue equal to zero.