Question

uestion 322 pts

The profit-maximizing rule MR = MC is:

Group of answer choices

followed by a perfectly competitive firm but not by a monopoly

followed by a monopoly but not by a perfectly competitive firm

followed by all types of firms

not followed by a monopoly because it would reduce economic profit to zero

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Question 332 pts

The shape of the marginal cost curve (MC) is driven by:

Group of answer choices

Diminishing returns

Diminishing returns, then specialization

Specialization

Specialization, then diminishing returns

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Question 342 pts

Many customers will walk right past a diner that serves coffee and go to Starbucks, where they pay more for a cup of coffee. For these customers, cups of coffee are differentiated by:

Group of answer choices

location

style

quality

type

Answer 1

Followed by all type of firms.

Marginal revenue refers to change in total revenue as a result of selling an additional unit of output. Marginal cost is the additional cost owing to the production of an additional unit of output. It is so because when MR>MC the additional unit of output leads to greater additional revenue than the additional cost of production. By increasing output, profit would rise. The firm will continue increasing output until MR=MC.

In case MR<MC additional unit of output leads to greater additional cost than the additional revenue. By cutting output, profit would increase. The firm will continue cutting output until MR=MC.

So MR=MC is the profit maximizing rule for any firm.

Diminishing return

The law of diminishing marginl states that as output increases marginal cost will increase which it is most costly to produce additional units.

Quality

When a consumer pays higher price because of its brand name, the consumer differentiates the product by its quality.