Which of the following statements is (are) TRUE?
I. A firm with market power maximizes profit by producing so that P = MC or MR = MC.
II. If marginal revenue exceeds marginal cost, the firm should expand output to increase profits.
III. If a firm has no costs of production, it should continue producing until marginal revenue falls to zero.

Question

Quizplus · Accepted Answer

II and III are true. A firm maximizes profit by producing at the level where MR = MC, not necessarily P = MC unless in perfect competition. If MR > MC, increasing output will increase profits. If there are no production costs, producing until MR = 0 maximizes revenue and thus profit.

Which of the Following Statements Is (Are) TRUE