A firm will always elect to reduce production when marginal cost is greater than average total...

Question:

A firm will always elect to reduce production when marginal cost is greater than average total cost if:

A) The firm is a price-taker and average total cost is maximum.

B) The firm is a price-setter and average total cost is maximum.

C) The firm is a price-taker and marginal cost exceeds the market price.

D) The firm is a price-setter and marginal revenue is greater than the market price.

E) None of these

Price-Setters vs. Price-Takers:

Price-setters (also called price-makers) and price-takers are more accurately called monopolies and competitive firms, respectively. Monopolies and competitive firms maximize profits by the same rule: marginal revenue and marginal cost must be equal. The only difference is that for monopolies, price should be greater than marginal revenue/marginal cost, and for competitive firms, price should be equal to marginal revenue/marginal cost.

Answer and Explanation: 1

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The answer is C) The firm is a price-taker and marginal cost exceeds the market price.

First, the firm will continue production in the short run...

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Perfect Competition: Definition, Characteristics & Examples

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Chapter 3 / Lesson 62
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Learn the definition, characteristics, and benefits of perfect competition. Review real-life examples of perfect competition between different companies.


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