The profit-maximizing rule for a perfectly competitive firm when choosing its level of output is to produce where price is equal to marginal cost
The profit-maximizing rule for a firm hiring labor in a perfectly competitive labor market is to hire workers up to the point where the marginal revenue product equal to the market wage. How are these two rules related to one another?
In both cases, the firm is comparing the cost of production with the potential revenues from the sale of the product at the margin. In the first (P=MC), the firm is comparing the price of the output with the cost of production directly. In the second (W=MRP), information on output price is included in marginal revenue product and the cost of production is represented by the wage paid to labor.
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Suppose that when output is 20, marginal cost is $20, and average total cost is $30 . Then which of the following is most likely to be true?
a. Average total cost is declining. b. Average total cost is constant. c. Average total cost is rising. d. Average total cost is less than average fixed cost.
Some competitive firms are willing to operate at a loss in the short run because their revenues are at least able to cover their variable costs
a. True b. False Indicate whether the statement is true or false