Why does a firm in perfect competition produce the quantity at which marginal cost equals price?
What will be an ideal response?
A firm's total profit is maximized by producing the level of output at which marginal revenue for the last unit produced equals its marginal cost, or MR = MC. In a perfectly competitive market, MR is equal to the market price P for all levels of output. These points imply that a perfectly competitive firm will maximize profit by producing the quantity at P = MC.
You might also like to view...
The change in cost that results from a one-unit increase in output is called the
A) average fixed cost. B) per-unit variable cost. C) per-unit total cost. D) marginal cost. E) average cost change.
Which of the following is not an example of inflation causing a redistribution of income because the inflation was unexpected?
A) Firms have to hire extra workers to change prices because of inflation. B) A firm signs a 4-year contract with a union based on a 3% expected rate of inflation per year, and the actual inflation rate ends up being 5% per year. C) An employee receives an increase in salary that is less than the rate of inflation because management under-predicted inflation. D) A bank collects a lower amount of interest from a loan because inflation was predicted to be 2% but was actually 4%.
The labor supply curve facing a monopsonist is:
a. downward sloping. b. upward sloping. c. a horizontal line. d. backward bending. e. a vertical line.
In 2012, the median income of U.S. families was about $86,000
a. True b. False Indicate whether the statement is true or false