Question

Assume that a firm is operating in a perfectly competitive market at its breakeven level of output. Which of the following statements is false:

a. Marginal costs and average revenue are equal.
b. Marginal cost and marginal revenue are equal.
c. Marginal cost and average variable cost are equal.
d. Marginal cost and average total cost are equal.

Answer 1

In a perfectly competitive market at its breakeven level of output, the statement that is false is that marginal cost and marginal revenue are equal.

Step-by-step explanation:

In a perfectly competitive market at its breakeven level of output, the following statement is false: b. Marginal cost and marginal revenue are equal.

When a firm operates at its breakeven level of output, it means that its total revenue equals its total cost, and it is making zero economic profit. At this level, the firm's average revenue is equal to its average cost. However, its marginal cost may not be equal to its marginal revenue.

Marginal cost measures the additional cost incurred by producing one more unit of output, while marginal revenue measures the additional revenue generated by producing one more unit of output. In a perfectly competitive market, the firm's marginal revenue is equal to the market price. Therefore, in order to maximize profit, the firm should produce the quantity of output where marginal cost equals marginal revenue (not average revenue).