Question

The Optimal Output Rule states an oligopoly producer should produce to the point where: a. MC...

The Optimal Output Rule states an oligopoly producer should produce to the point where:

a. MC > MR

b.MC = MR

c. MR > MC

d. MC < MR

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Homework Answers

Answer #1

b.MC = MR

Explanation :

Optimal production is when firm maximizes its profit.

Oligopoly maximises it's profit where MR equals to MC.

Marginal revenue is the extra revenue generated by the firm with selling one more extra unit and marginal cost is the extra cost occurred with the production of one more extra unit.

When extra revenue is less than extra cost, the production of that extra unit is not profitable. When extra revenue is greater than extra cost, production of one more extra unit is profitable. So firm will maximise its profit by producing where MR equals MC.

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