Verbally explain why a firm would maximize profits by producing output up to the point where MR = MC
At levels of output below the equilibrium, marginal revenue is typically greater than marginal cost. Thus,
the firm could add more to total revenue than it would add to total cost by producing an additional unit of
output. As a result, profits would rise. The opposite holds at output levels above equilibrium, in that
MR < MC. The reduction in total revenue from producing one less unit of output is less than the reduction
in total cost by producing one less unit of output, so profits would rise by reducing output.
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Refer to the table above. What is Seller 3's producer surplus?
A) $1 B) $2 C) $3 D) $4
What is the trade-off that consumers face when buying the product of a monopolistically competitive firm?
A) Consumers pay higher prices but the products are produced by highly efficient firms. B) Consumers pay lower prices but have fewer choices. C) Consumers pay a price greater than marginal cost, but have the luxury of choices more suited to their tastes. D) Consumers pay higher prices but receive better quality goods compared to the output of perfectly competitive firms.