- This topic has 5 replies, 5 voices, and was last updated Jul-197:10 am by
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Up2
Within an industry, each firm selects an
output level such that marginal revenue equals marginal cost. This decision
process is optimal for:- A. all firms, independent of industry structure.
- B. all industrial structures except for monopolies.
- C. all industrial structures except for monopolies and oligopolies.
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Up4
So is C the right answer?
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Up3
The answer is A.
For perfectly competitive price-taking firms, marginal revenue and price will be equal since they face an essentially horizontal (perfectly elastic) demand curve. For monopolies, the output is chosen such that marginal revenue and marginal cost are equal, but the demand curve is downward sloping, so the price will be set above the marginal revenue.
While trying to find another way to explain it, I stumbled upon a university website (https://www3.nd.edu/~cwilber/econ504/504book/outln4b.html) that sums it well:
1. In choosing the output to produce, the monopolist follows the marginal principle. a. This principle states the profit maximizing output is that output where marginal revenue equals marginal cost.1. If marginal revenue is greater than marginal cost, the monopolist should increase output.2. If marginal revenue is less than marginal cost, the monopolist should decrease output. -
Up2
MR = MC means you’re producing just the right amount for maximum profit.
http://www.investopedia.com/ask/answers/041315/how-marginal-revenue-related-marginal-cost-production.asp
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Up2
I think it’s A. We’ll see at the end of the week.
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Up0
I thought MR = MC is optimal for perfect competition, or am I getting this wrong?
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