The profit-maximizing rule P = MC is:
A) followed by a monopoly.
B) followed by a perfectly competitive firm.
C) a rule for any firm that wants to maximize profits.
D) false for all of the above.

Question

Quizplus · Accepted Answer

The profit-maximizing rule P = MC is only followed by a perfectly competitive firm in the long run, where price equals marginal revenue (P=MR) because they are price takers and cannot influence the price. Monopolies have market power and set their own price, so they do not follow this rule. However, it is still a rule for any firm that wants to maximize profits, regardless of market structure. Therefore, option C is partially correct but B is the best choice as it represents the specific scenario where the rule is followed. D is incorrect as the statement is true for perfectly competitive firms.

The Profit-Maximizing Rule P = MC Is