The second-order condition for a firm maximizing its profit operating in a monopolistically competitive market is: A) −(d²C(Q)/dQ²)

Question

The second-order condition for a firm maximizing its profit operating in a monopolistically competitive market is: A) −(d²C(Q)/dQ²) < 0. B) (d²R (Q)/dQ²) − (d²C(Q)/dQ²) < 0. C) (d²R (Q)/dQ²) = (d²C(Q)/dQ²). D) (dMR/dQ) > (dMC/dQ).

Quizplus · Accepted Answer

The second-order condition for profit maximization requires the second derivative of the profit function (which is revenue minus cost) with respect to quantity to be less than zero. This ensures that the profit function is concave down, indicating a maximum point. Option B correctly represents a condition where the change in revenue minus the change in cost with respect to quantity is less than zero, aligning with the requirement for a maximum profit condition.

The Second-Order Condition for a Firm Maximizing Its Profit Operating