Multiple Choice
Which of the following is NOT typically considered part of the business market in a competitive market?
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3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
Which of the following expressions is correct for a competitive firm?
A
MR < MC
B
TR = TC at profit maximization
C
P = MC
D
P < MR
Verified step by step guidance1
Step 1: Understand the context of a competitive firm. In perfect competition, firms are price takers, meaning the price (P) is given and constant for each unit sold.
Step 2: Recall the profit maximization condition for a competitive firm. The firm maximizes profit where marginal revenue (MR) equals marginal cost (MC). Since the firm is a price taker, MR equals the market price (P), so the condition is \(P = MR = MC\).
Step 3: Analyze each expression given:
- \(MR < MC\) implies the firm is producing too much and should reduce output.
- \(TR = TC\) means the firm is breaking even, but this is not the condition for profit maximization.
- \(P = MC\) is the correct profit-maximizing condition for a competitive firm.
- \(P < MR\) cannot be true in perfect competition because \(P = MR\).
Step 4: Conclude that the correct expression representing the profit-maximizing condition for a competitive firm is \(P = MC\).
Step 5: Remember that this condition ensures the firm is producing the quantity where the cost of producing one more unit equals the revenue gained from selling it, maximizing profit.
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