Question

QUESTION 22 All firms, regardless of market structure, maximize profits by choosing a level of output such that: a. Marginal revenue equals marginal cost b. Marginal cost is zero c. Price equals marginal cost d. Marginal cost is minimized

Answer 1

Answer 22

Profit(Pr) = TR - TC(regardless of market structure) where TR = total revenue and TC = total cost

Maximize : Pr

First order condition :

d(Pr)/dQ = 0 => d(TR - TC)/dQ = 0 => d(TR)/dQ - d(TC)/dQ = 0 => MR - MC = 0=> MR = MC

where Q = quantity, MR = marginal revenue = d(TR)/dQ, MC = marginal cost = d(TC)/dQ

Thus MR = MC means that Marginal revenue = Marginal Cost(regardless of market structure)

Hence, the correct answer is (a) Marginal revenue equlas marginal cost.