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.

Question

Quizplus · Accepted Answer

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.

If a Competitive Firm Has a U-Shaped Marginal Cost Curve