Question

The profit-maximizing rule MR = MC is:

Select one:

a. not followed by a monopoly, because it would reduce economic profit to zero.

b. followed by a monopoly, but not a perfectly competitive firm.

c. followed by a perfectly competitive firm but not by a monopoly.

d. followed by any firm.

Answer 1

Followed by any firm.

Explanation:

The profit maximizing condition of the equality between marginal revenue and marginal cost is followed by both of the Monopoly and a firm in perfectly competitive market.

a monopoly determines its profit maximizing output level by equating its marginal revenue and marginal cost. When marginal cost becomes more than marginal revenue Monopoly firm does not produce.

For a firm in perfectly competitive market we know that firms are price takers and they sets marginal cost equals to the price that prevails in the market. And this set the quantity to supply by them. In a perfectly competitive market price of the all units are equal and the average revenue and marginal revenue from selling output are equals to the price of the output. Hence in perfectly competitive market also the equality between marginal revenue and marginal cost holds.