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If the statement is correct, write TRUE on your answer sheet. If the statement is incorrect, write FALSE. Explain why you answered TRUE or FALSE.

a) When marginal profit is zero, total profit is likewise zero.
b) In a monopolistic firm, MR = P - (dP/dQ) * Q. This implies that the average revenue (AR) is higher.

User BenLanc
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Final answer:

The assertion that marginal profit being zero implies total profit is zero is false, as marginal profit being zero just means profit has peaked, not that it's non-existent. The claim that MR = P - (dP/dQ) * Q signifies higher average revenue is also false, since this equation shows how MR changes with output, not that AR is greater.

Step-by-step explanation:

When considering if the statement is correct, regarding that when marginal profit is zero, total profit is likewise zero, the answer is FALSE. Marginal profit refers to the additional profit from selling one more unit, and it being zero simply indicates that the profit has reached its maximum - not that it is non-existent. Total profit could be positive at the point where marginal profit is zero if the average cost is below the price.

Regarding the statement for a monopolistic firm, where MR = P - (dP/dQ) * Q, this implies that the average revenue (AR) is higher, the answer is FALSE. While it is true that for a monopolist, the marginal revenue (MR) is not equal to the price (MR < P), because the monopolist faces a downward-sloping demand curve and must reduce the price to sell more units, this equation itself does not imply that AR is higher. Average Revenue is essentially the same as price (AR = P), and the aforementioned equation represents how MR decreases as output (Q) increases due to the price effect.

User UncleFifi
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