Suppose that the Uncle Sam Cap Company is a profit-maximizing firm with market power in the production of football caps. The firm sells its football caps for $25 each. From this information, we can assume that the Uncle Sam Cap Company produces a level of output at which:
A)marginal revenue equals $25.
B)marginal cost is less than $25.
C)average total cost equals $25.
D)average total cost is greater than $25.

Question

Quizplus · Accepted Answer

For a profit-maximizing firm with market power, the firm will produce where marginal cost (MC) equals marginal revenue (MR), and since the firm has market power, MR is less than the price ($25). Therefore, MC must be less than $25.

Suppose That the Uncle Sam Cap Company Is a Profit-Maximizing