A monopolist can set any price it wants. So why does it still produce at a point where MC=MR, just like a perfectly competitive firm?
What will be an ideal response?
The point where MC = MR maximizes any firm's profit for the same reason it maximizes a perfectly competitive firm's profit. In particular, for small amounts of output it is the case that the MR exceeds the MC. Any unit for which MR > MC is a profitable unit to produce and so the firm wants to produce all of these units. As it increases its output, its total profit increases even as the difference between MR and MC shrinks. But as long as MR > MC, the unit is profitable and therefore is produced. Eventually the firm gets to the point where MR = MC. The firm does not want to go beyond this level of output, because for every unit beyond it MC>MR. Producing these units would cost the firm profit. So, once it starts producing, the firm won't stop producing additional units of output before it reaches the level for which MR = MC. Then, once it reaches this point, it won't go beyond this amount. Therefore the condition MR = MC determines the profit maximizing level of output.
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When economic efficiency is attained, it implies all of the following, except:
A. Per-unit cost of output produced is at minimum B. Allocative efficiency is achieved C. Total consumer and producer surplus is at a maximum D. The gap between marginal benefits and marginal costs of production is at maximum
Refer to the table. For these data, the law of increasing opportunity costs is reflected in the fact that:
Answer the question on the basis of the data given in the following production possibilities
table:
A. the amount of consumer goods that must be sacrificed to get more capital goods
diminishes beyond a point.
B. larger and larger amounts of capital goods must be sacrificed to get additional units of consumer goods.
C. the production possibilities data would graph as a straight downsloping line.
D. the economy's resources are presumed to be scarce.