If a firm is a profit maximizer and faces positive marginal costs,
A) there is a natural limit to the size of the firm, where MR = 0.
B) there is no natural limit to the size of the firm; it can be as large as it wants to be.
C) there is a natural limit to the size of the firm, where MR 0.
D) there is no natural limit to the size of the firm, hence the need for government regulation.

Question

If a firm is a profit maximizer and faces positive marginal costs,
A) there is a natural limit to the size of the firm, where MR = 0.
B) there is no natural limit to the size of the firm; it can be as large as it wants to be.
C) there is a natural limit to the size of the firm, where MR > 0.
D) there is no natural limit to the size of the firm, hence the need for government regulation.

Quizplus · Accepted Answer

A profit-maximizing firm will expand until marginal revenue (MR) equals marginal cost (MC), not where MR = 0. Therefore, the natural limit is where MR > 0 and equals MC.

If a Firm Is a Profit Maximizer and Faces Positive