Question

Indicate the best answer for each of the following questions by bold printing the entire correct response.

1Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly?
A) Each must lower its price to sell more output.
B) Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost.
C) Each sets a price for its product that will maximize its revenue.
D) Each maximizes profits by producing a quantity for which price equals marginal cost.

Answer 1

The common characteristic between a perfectly competitive firm and a monopoly is that both will produce a quantity where marginal revenue equals marginal cost to maximize profits.

Step-by-step explanation:

The characteristic shared by a perfectly competitive firm and a monopoly is that each maximizes profits by producing a quantity for which marginal revenue equals marginal cost. Both types of firms seek to maximize their profits, which equates to the difference between total revenues and total costs. While a perfectly competitive firm takes the market price as given and can sell any amount of goods at this price, a monopoly can influence the market price based on the quantity it produces. For a perfectly competitive firm, marginal revenue is constant and equal to the market price, and profit maximization occurs where this price equals marginal cost. In contrast, a monopoly has a downward-sloping demand curve and must lower its price to sell additional units. However, despite this difference in market power, in both market structures, firms will produce at an output level where marginal revenue equals marginal cost to maximize profits.