If, at the output where marginal cost equals marginal revenue, both a pure compe
ID: 1224803 • Letter: I
Question
If, at the output where marginal cost equals marginal revenue, both a pure competitor's and a monopolist's marginal revenue is $5.00:
A) both sellers' profit-maximizing price will be $5.00.
B)) both sellers' profit-maximizing price will be greater than $5.00.
C) the pure competitor's profit-maximizing price will be $5.00, and the monopolist's profit-maximizing price will be greater than $5.00.
D) the monopolist's profit-maximizing price will be $5.00, and the pure competitor's profit-maximizing price will be greater than $5.00.
E) it is impossible to compare the output choice of the perfect competitor with that of the monopolist
Explanation / Answer
For both perfect competitors and monopolist’s profit-maximising price will be $5.00. If a firm attempts to produce any quantity over and above such level, then the marginal revenues will be less than the marginal cost and the firm will start making losses.
If a firm is producing output below the level, where MR=MC, it will make profit, however, it will incurred an opportunity loss for not producing the quantity, where its profit is maximized. Therefore, the firm will continue to produce output until it reaches the profit-maximization level.
So the correct option is (A).