For a perfectly competitive firm with a known marginal cost and random demand, as the expected marginal revenue increases, the profit- maximizing quantity ________ .

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the firm is a price taker and faces a horizontal demand curve, where price equals marginal revenue. Therefore, if the expected marginal revenue increases, the firm can sell more at a higher price without affecting the market price. As a result, the firm will increase its profit-maximizing quantity, as long as the marginal cost is less than the marginal revenue.

For a Perfectly Competitive Firm with a Known Marginal Cost