Question

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

1. Which 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 correct answer is B) Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost.

Step-by-step explanation:

The correct answer is B) Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost.

A perfectly competitive firm and a monopoly differ in terms of pricing and output decisions. A perfectly competitive firm acts as a price taker, producing at a quantity where marginal cost equals market price. On the other hand, a monopoly firm maximizes profits by producing a quantity where marginal revenue equals marginal cost.