If a multi- plant firm with market power is maximizing its profits, the price it charges per unit of its product will _______ its ______.
A)equal; overall marginal cost
B)exceed; demand
C)exceed; overall marginal cost
D)equal; overall average cost

Question

Quizplus · Accepted Answer

A firm with market power charges a price higher than the marginal cost of production in order to maximize its profits. Therefore, the price it charges per unit of its product will exceed its overall marginal cost. Option A is incorrect because the price may not necessarily equal the overall marginal cost. Option B is incorrect because the firm may not charge a price that exceeds the demand. Option D is incorrect because the firm's overall average cost has no direct relation with the price charged.

If a Multi- Plant Firm with Market Power Is Maximizing