Question

Which of the following statements is correct for both a monopolist and a perfectly competitive firm? (i) The firm maximizes profits by equating marginal revenue with marginal cost. (ii) (ii) The firm maximizes profits by equating price with marginal cost. (iii) (iii) Demand equals marginal revenue. (iv) (iv) Average revenue equals price. A. (i) and (iv) only B. (i), (iii), and (iv) only C. (i), (ii), (iii), and (iv)

Answer 1

Answer:

A

Explanation:

-Both firms maximize the profit equating the marginal revenue (MR) with the marginal cost (MC). i) Is correct

-MR is equal to the price, but not in the monopoly. The monopolist can planify and impose the price. Then ii) is incorrect

-MR is the difference between the increment in the revenue, is not equal with demand. iii) is incorrect

- Average revenue (AR) = Price (P)

AR= Revenue/Quantity

AR= P x Q / Q

AR= P    -------------------------> iv) Is correct!