Asked by Shannon Flynn on May 19, 2024
Verified
If a competitive firm has a U-shaped marginal cost curve then:
A) the profit-maximizing output will always generate positive economic profit.
B) the profit-maximizing output will always generate positive producer surplus.
C) the profit-maximizing output is found where MC = MR and MC is decreasing.
D) the profit-maximizing output is found where MC = MR and MC is constant.
E) the profit-maximizing output is found where MC = MR and MC is increasing.
U-Shaped Marginal Cost
A graphical representation of the cost incurred to produce one more unit of a good, which decreases at first due to increasing returns but eventually increases due to decreasing returns.
Profit-Maximizing Output
The quantity of output at which a firm achieves the maximum possible profit, determined where marginal revenue equals marginal cost.
Economic Profit
The difference between total revenue and total costs, including both explicit and implicit costs.
- Elucidate the connection between total revenue, total cost, marginal revenue, and marginal cost for optimizing profits.
- Use marginal analysis to identify the output levels that lead to the maximization of profit.
Verified Answer
BE
Breanna EarnestMay 20, 2024
Final Answer :
E
Explanation :
The profit-maximizing output for a competitive firm is found where marginal cost (MC) equals marginal revenue (MR), and at this point, the MC curve should be increasing. This is because when MC is increasing, it indicates that the firm is producing at an efficient level, beyond which producing additional units would cost more than the revenue they would bring in, thus not maximizing profits.
Learning Objectives
- Elucidate the connection between total revenue, total cost, marginal revenue, and marginal cost for optimizing profits.
- Use marginal analysis to identify the output levels that lead to the maximization of profit.