Question

Suppose your firm operates in a perfectly competitive market and decides to double its output. How...

Suppose your firm operates in a perfectly competitive market and decides to double its output. How does this affect the firm's marginal profit?

The answer was "Marginal revenue increases but marginal cost remains the same". I can understand why marginal revenue increases but I don't know why marginal cost remains the same.

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Answer #1

Right Answer should be '' marginal revenue remains same and but marginal cost increases ''

Explanation :

In perfect competition, firms are price taker. So they charge same price for every level of output. Marginal revenue is the extra revenue generated by the firm with selling one more extra unit.

Because the price is same for every level of output, extra revenue will be equal to price. So, no matter what output you produce, marginal revenue equals price and will be same for every level of in perfect competition.

Marginal cost is upward sloping so, it increases as output increases.

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