Which of the following statements is TRUE?
I. If a competitive firm sells its product at a price of $80, the firm should increase production from 100 to 101 units if the total cost rises from $2,000 to $2,066.
II. If the marginal cost of the tenth unit is $14 and the marginal revenue is $10, the firm should produce the tenth unit to increase profits by $4.
III. For competitive firms, profits are maximized at MR = MC or P = MC, since P = MR.
A) I and III only
B) II only
C) I, II, and III
D) III only

Question

Quizplus · Accepted Answer

I. If a competitive firm sells its product at a price of $80, the firm should increase production from 100 to 101 units if the total cost rises from $2,000 to $2,066.Explanation: For a competitive firm, the profit-maximizing output is where marginal cost (MC) equals marginal revenue (MR). In this case, the marginal cost of producing the 101st unit is $6 ($2,066 - $2,000), and the marginal revenue is $80 (the price of the product). Since MC < MR, the firm should increase production to 101 units.III. For competitive firms, profits are maximized at MR = MC or P = MC, since P = MR.Explanation: For a competitive firm, the price (P) is equal to marginal revenue (MR). Therefore, the profit-maximizing output is where MR = MC, which is also where P = MC.

Which of the Following Statements Is TRUE