Question

The reason price equals marginal revenue in a competitive market is that:

		the law prohibits marginal revenue from diverging from market price.
		marginal revenue always is equal to marginal cost.
		since price is constant, the added revenue from selling one more unit is the price.
		consumer advocacy groups maintain a steady price.

If MR is greater than MC, then:Which of the following statements regarding marginal revenue for a competitive firm is correct?

		It is never used to determine a firm's output.
		It is calculated by dividing the change in total revenue by the change in the number of workers.
		It is always equal to the market price.
		It changes because the firm has some limited control over price.

		the firm should decrease output.
		profits are maximized.
		profits are minimized.
		the firm should increase output.

The profit-maximizing rule states that a firm:

		should not produce a unit if its MC < MR.
		should stop production as soon as it experiences diminishing marginal returns.
		should produce that level of output at which MR = MC.
		produces too much if MR = MC.

Answer 1

The reason price equals marginal revenue in a competitive market is that:
Ans. since price is constant, the added revenue from selling one more unit is the price.
Explanation: The firms face horizontal demand curve as they are price takers.

If MR is greater than MC, then:Which of the following statements regarding marginal revenue for a competitive firm is correct?
It is always equal to the market price.
Explanation: In perfect competition the firm is a price taker. So P = MR.

Ans. the firm should increase output.
For profit maximisation, MC = MR