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29 June, 16:04

Under conditions of monopoly and perfect competition, a firm:

a. is a price seeker. is a price taker.

b. will quit producing in the short run if price is less than ATC.

c. will produce at that output level where the MR equals MC.

d. always earns an economic profit.

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  1. 29 June, 17:46
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    c. will produce at that output level where the MR equals MC.

    Explanation:

    In monopoly, increasing output leads to reduction in price (marginal revenue MR decreasing with output). In perfect competition, a firm's output doesn't affect price (constant MR)

    Marginal cost tend to decreases and then increases. Perfectly competitive firm will keep producing as long as marginal cost is less than marginal revenue as additional output bring the additional profit (MR - MC > 0) until that profit equals zero (MR - MC = 0, ie. MR = MC).

    Producing past that level will reduce profit with every additional unit (additional profit MR - MC < 0)
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