Suppose that the Uncle Sam Jersey Company is a profit-maximizing firm with market power in the production of hockey jerseys. The firm sells its hockey jerseys for $75 each. From this information, one can conclude that the Uncle Sam Jersey Company is producing a level of output at which:
A)marginal revenue equals $75.
B)marginal cost is less than $75.
C)average total cost equals $75.
D)average total cost is greater than $75.

Question

Quizplus · Accepted Answer

A profit-maximizing firm with market power sets its output level where marginal cost equals marginal revenue. Since the firm sells jerseys for $75, and it has market power, the price is greater than marginal revenue. Therefore, marginal cost must be less than $75.

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