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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

Does a competitive firm’s price equal its marginal cost in the short run, in the long run, or both? Explain.

To determine
The competitive firm’s price that is equal to marginal cost in the short run and the long run.

Explanation

A profit-maximizing firm produces an output at the point where the marginal cost is equal to marginal revenue. The marginal revenue for the competitive firm is equal to price. The competitive firm is a price taker. Thus, firms in the competitive market earn a normal profit and the marginal cost as well as marginal revenue is always equal...

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