Which of the following statements are true for a competitive market in which all firms have...
Which of the following statements are true for a competitive market in which all firms have upward-sloping marginal cost curves?
A) If more firms enter the market, the market price will fall, and so will profits. TRUE
B) The marginal cost is always equal to price. TRUE
C) The average cost is always equal to the price. FALSE
why is B true?? Is it only true in perfectly competitive market? I don't see why it is possible in other types of markets
Homework Answers
(B) True
For all market structures, firms maximize profit when MR = MC.
In perfect competition, firms are price takers, so their demand curve is horizontal and Price = MR. Therefore, for competitive firms,
Price = MR = MC.
This condition is true only for perfectly competitive markets.
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