If a Competitive Firm Has a U-Shaped Marginal Cost Curve

question 23

Multiple Choice

If a competitive firm has a U-shaped marginal cost curve then:

• A) the profit-maximizing output will always generate positive economic profit.
• B) the profit-maximizing output will always generate positive producer surplus.
• C) the profit-maximizing output is found where MC = MR and MC is decreasing.
• D) the profit-maximizing output is found where MC = MR and MC is constant.
• E) the profit-maximizing output is found where MC = MR and MC is increasing.

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Definitions:

External Cost

A cost borne by individuals or society that is not reflected in the market price of a good or service, often associated with negative externalities.

Socially Optimal

A condition or point at which the welfare of a society reaches its highest possible level, considering all factors and resources.

Demand Curve

A graphical representation of the relationship between the price of a good and the quantity demanded.

Supply Curve

A graphical representation showing the relationship between the price of a good or service and the quantity of that good that suppliers are willing and able to provide.