Question

You’re thinking of buying one of two firms. One has a profit margin of $4 per unit; the other has a profit margin of $10 per unit. Which should you buy? Why?
If both firms are producing where MR = MC and you could buy either for the same amount, then you should buy the firm:
A. that has a profit margin of $4 per unit because it must be producing more and is therefore earning the higher total profits.
B. that has a profit margin of $10 per unit because it must be producing more and is therefore earning the higher total profits.
C. there is not enough information to determine which firm to buy.
D. The one with the highest total profit should be bought.
E. that has a profit margin of $10 per unit.
A higher profit margin means that you could increase output and further increase total profits.

Answer 1

There is not enough information to determine which firm to buy.

Answer: Option C

Explanation:

In the question above, only the profit margin of both the firms are given, but only on these basis, it cannot be decided which firm to be bought. A lot of other things are to be kept in mind while taking into consideration the decision of buying a fir.

Even if both the firms are working in the equilibrium condition which is the condition of MR = MC, then also it can not be decided, which one firm to buy.