Question

What does P=AC=MC=MR=LR represent?

A) The equilibrium price and quantity in a perfectly competitive market
B) A monopolistic firm's profit-maximizing output level
C) The relationship between total cost and total revenue
D) The point of zero economic profit in a monopolistic competition market

Answer 1

In a perfectly competitive firm, MR = MC = P = AC = LR, which represents the profit-maximizing level of output. However, for a monopolistic firm, MR is not equal to price as quantity changes affect the price.

Step-by-step explanation:

A perfectly competitive firm will find its profit-maximizing level of output where MR = MC = P = AC = LR. In a perfectly competitive market, MR (marginal revenue) is equal to P (price), which is also equal to AC (average cost) and LR (long-run average . cost)This means that a perfectly competitive firm maximizes its profit by producing at the quantity where these equalities hold true. However, for a monopolistic firm, marginal revenue is not equal to price because changes in quantity of output affect the price.