Question

True or false? A competitive firm has a continuous marginal cost curve. It finds that as output increases, its marginal cost curve first rises, then falls, then rises again. If it wants to maximize profits, the firm should never produce at a level of output where the price equals marginal cost, and the latter decreases as output increases. Explain, please!

Answer 1

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Answer

A competitive firm has a continuous marginal cost curve but the marginal cost curve decreases with increasing rates as output increases and after its minimum point it starts increases with the increasing rate with increases in output (as figure a shows ).

In short-run competitive firm equilibrium exists at a point where price equals to marginal cost.(as figure b shows )

so the above statement is false

where the horizontal line on figure b is demand curve or average revenue (price) curve