At the level of output where the marginal cost and marginal revenue curves intersect, two firms demand curves pass above their average total cost curve. One firms is a monopoly and the other is perfectly competitive. Which statement is true for both firms?
A) The firms are making an economic profit.
B) Price equals marginal revenue.
C) Price equals marginal cost.
D) Entry of new firms is expected in the market.

Question

Quizplus · Accepted Answer

When the demand curve is above the average total cost curve at the output level where marginal cost intersects with marginal revenue, both firms are making an economic profit. This is because the price (determined by the demand curve) is higher than the average total cost at that level of output, leading to profits.

At the Level of Output Where the Marginal Cost and Marginal