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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

For a profit-maximizing monopoly that charges the same price to all consumers, what is the relationship between price P, marginal revenue MR, and marginal cost MC?

a. P = MR and MR = MC.

b. P > MR and MR = MC.

c. P = MR and MR > MC

d. P > MR and MR > MC.

To determine
The relationship between price, marginal revenue and marginal cost.

Explanation

Option (b):

Monopoly firm’s marginal revenue is always lesser than the price; as the price falls, a portion of revenue forgoes. The firms will be able to maximize its profit, when the marginal revenue is equal to marginal cost. Thus, option ‘b’ is correct.

Option (a):

Under perfect competition, the price is equal to the marginal revenue, where the firm is a price receiver. Thus, option ‘a’ is incorrect...

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