The figure below shows the marginal cost and average total cost curves for a perfectly competitive firm. If the market price is $10, thenSelected answer will be automatically saved. For keyboard navigation, press up/down arrow keys to select an answer.amarginal cost always equals marginal revenue for each unit sold.bthe firm earns $10 profit on each unit sold.cmarginal revenue equals $10.dthe firm earns $8 profit on each unit sold.
Question
The figure below shows the marginal cost and average total cost curves for a perfectly competitive firm. If the market price is 10 profit on each unit sold.cmarginal revenue equals 8 profit on each unit sold.
Solution
In a perfectly competitive market, the price is determined by the market and is the same for all firms. Therefore, the market price is also the firm's marginal revenue. This is because the firm can sell as much as it wants at the market price. So, the correct answer is c) marginal revenue equals $10.
Here's why the other options are incorrect:
a) Marginal cost equals marginal revenue at the profit-maximizing level of output, not for each unit sold.
b) The firm does not necessarily earn $10 profit on each unit sold. Profit per unit is equal to price minus average total cost, not the price alone.
d) Again, the firm does not necessarily earn $8 profit on each unit sold. The profit per unit depends on the difference between the price and the average total cost.
Similar Questions
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