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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

A competitive firm maximizes profit by choosing the quantity at which

a. average total cost is at its minimum.

b. marginal cost equals the price.

c. average total cost equals the price.

d. marginal cost equals average total cost.

To determine
The condition of the competitive firm maximizing the profit by choosing the quantity.

Explanation

Option (b):

For a competitive firm, price is equal to marginal revenue. Thus, the marginal revenue curve coincides with demand curve (price). Hence, the profit-maximizing point occurs at the point where the price is equal to marginal cost. Thus, option ‘b’ is correct.

Option (a):

In the long run firms would operate at the point where their long run average cost is minimum...

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