Multiple Choice QuestionIn the short run, monopolistically competitive firms maximize profits or minimize losses by producing the output level whereMultiple choice question.marginal revenue equals average total cost.marginal revenue equals marginal cost.price equals average variable cost.price equals marginal cost.marginal revenue equals price.
Question
Multiple Choice QuestionIn the short run, monopolistically competitive firms maximize profits or minimize losses by producing the output level whereMultiple choice question.marginal revenue equals average total cost.marginal revenue equals marginal cost.price equals average variable cost.price equals marginal cost.marginal revenue equals price.
Solution
The correct answer is: marginal revenue equals marginal cost.
Here's why:
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In the short run, firms maximize profits or minimize losses by adjusting their output level.
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The rule for profit maximization is to produce at the output level where marginal cost (MC) equals marginal revenue (MR). This is because the marginal cost is the cost of producing one more unit of a good, and the marginal revenue is the revenue gained from selling one more unit of a good.
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When MC = MR, the firm is maximizing its profit because it's not spending more to produce and sell an additional unit than it's earning from that unit.
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The other options are incorrect. For example, price equals average variable cost or price equals marginal cost are conditions for a firm to break even, not for profit maximization. And marginal revenue equals price or marginal revenue equals average total cost are not standard conditions for profit maximization.
Similar Questions
A company conducting business in a monopolistically competitive market will most likely maximise profits when its output quantity is set such that ______.Average cost is minimised.Marginal revenue equals average cost.Marginal revenue equals marginal cost.
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Multiple Choice QuestionWhich of the following describes why marginal revenue is less than price for monopolists?Multiple choice question.Because marginal revenue is greater than marginal cost which is less than priceBecause total revenue is greater than priceBecause the lower price of the extra unit of output also applies to all prior units of outputBecause the lower price of the extra unit of output only applies to subsequent units of output
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