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Two profit-maximizing firms - Firm A and Firm B, have identical marginal cost curves and face...

Two profit-maximizing firms - Firm A and Firm B, have identical marginal cost curves and face identical demand. However, Firm A has a higher fixed cost than Firm B. What will be true about the output produced by the two firms?

A

Firm A will produce less output than Firm B and make smaller profits.

B

Firm A will make losses while Firm B will make profits.

C

Firm A will produce the same level of output as Firm B but earn smaller profits.

D

Firm A and Firm B will produce the same level of output and earn the same profit.

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Answer #1

Answer) wo profit-maximizing firms - Firm A and Firm B, have identical marginal cost curves and face identical demand. However, Firm A has a higher fixed cost than Firm B then Firm A will produce the same level of output as Firm B but earn smaller profits because profit maximization condition is MR = MC and since both are identical they have Same MC but firm A fixed cost is higher than firm B that's why firm A profit will be less than firm B.

Hence option C is the correct answer.

Note: Please like my answer and comment for further clarification, it's urgent.

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