Curve MR is horizontal because:
a. product price falls as output increases.
b. the law of diminishing marginal utility is at work.
c. the market demand for this product is perfectly elastic.
d. the firm is a price taker.
FIGURE 10.3 Short-run profit maximization for a purely competitive firm. The MR = MC output enables the purely competitive firm to maximize profits or to minimize losses. In this case MR (= P in pure competition) and MC are equal at an output Q of 9 units. There, P exceeds the average total cost A = $97.78, so the firm realizes an economic profit of P - A per unit. The total economic profit is represented by the green rectangle and is 9 (P - A).
Market competition exists when two or more firms compete for customers. The competition will drive innovation and reduce the overall price of goods as distributors attempt to gain market share. Limitations on market entry or government interventions can impact market equilibrium resulting in inefficiencies and higher prices to consumers.
Answer and Explanation:
The correct answer is d. the firm is a price taker. Curve MR is horizontal because the firm is a price taker.
A firm is a price taker if it has no...
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fromChapter 14 / Lesson 3
Learn the fixed-price definition and understand how fixed-price contracts work. See fixed-price contract examples and the types, such as firm fixed-price contracts.