(Figure: Output Level) According to the rational rule, what output and price should the firm in the following example choose?

A)quantity = 6; price = $6.00
B)quantity = 4; price = $4.00
C)quantity = 8; price = $9.00
D)quantity = 4; price = $7.00

Question

(Figure: Output Level) According to the rational rule, what output and price should the firm in the following example choose?

A)quantity = 6; price = $6.00 
B)quantity = 4; price = $4.00 
C)quantity = 8; price = $9.00 
D)quantity = 4; price = $7.00

Quizplus · Accepted Answer

The rational rule states that a profit-maximizing firm should produce the quantity of output where marginal revenue equals marginal cost. Looking at the graph, the point where marginal revenue equals marginal cost is at an output level of 4. At that level, the price would be $7.00. Therefore, the best choice for the firm is to produce 4 units of output at a price of $7.00.

(Figure: Output Level) According to the Rational Rule, What Output