Which of the following offers the fullest explanation of why "price equals marginal cost" is the rule from marginal analysis that indicates the profit-maximizing output level?

Question

Quizplus · Accepted Answer

The rule "price equals marginal cost" is derived from marginal analysis which compares marginal costs and marginal revenues. Option A explains that if output is reduced from the profit-maximizing level, the firm would be giving up marginal revenue that exceeds marginal cost, resulting in a reduction in the level of profit. Option B explains that if output is increased from the profit-maximizing level, the firm would be gaining marginal revenue that is less than the marginal cost incurred in producing this additional unit, thus reducing the level of profit. Therefore, both option A and B are correct, which is why D is the best choice. Option C is incorrect as it describes collusion, which is a form of anti-competitive behavior and not related to the rule "price equals marginal cost."

Which of the Following Offers the Fullest Explanation of Why