The Golden Rule of Output Determination is,in fact,the same for both a monopolist and a perfectly competitive firm because
A) price is equal to marginal cost for both market types.
B) price and marginal revenue are identical for a perfectly competitive firm.
C) price exceeds marginal revenue for both market types.
D) profits are maximized for both firm types as long as marginal revenue exceeds marginal cost.
E) marginal revenue and marginal cost curves are identical for both market types.

Question

Quizplus · Accepted Answer

The Golden Rule of Output Determination is to produce at the level of output where marginal revenue equals marginal cost in order to maximize profits. In a perfectly competitive market, price and marginal revenue are identical, so producing at the level where MR=MC is the same as producing where P=MC. This is also true for a monopolist, as long as they have market power and can set their own price above marginal cost. However, in a perfectly competitive market, price is equal to marginal cost, while in a monopolistic market, price exceeds marginal cost. Therefore, choice A, C, and E are incorrect. While it is true that profits are maximized where marginal revenue exceeds marginal cost, this is not unique to monopolies or perfect competition, so choice D is not the best choice for this question.

The Golden Rule of Output Determination Is,in Fact,the Same for Both