Question

Consider a profit-maximizing firm in a competitive industry. Under which of the following situations would the firm choose to produce where MR = MC?

1) When MR > MC
2) When MR < MC
3) When MR = MC
4) Cannot be determined

Answer 1

A perfectly competitive firm will find its profit-maximizing level of output where MR = MC, and for monopolists, this is not the case.

Step-by-step explanation:

A perfectly competitive firm will also find its profit-maximizing level of output where MR = MC. The key difference with a perfectly competitive firm is that in the case of perfect competition, marginal revenue is equal to price (MR =P), while for a monopolist, marginal revenue is not equal to the price, because changes in quantity of output affect the price.