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:

Period Cost

Costs that are not directly tied to the production process and are expensed in the period they are incurred.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision, representing the benefits one could have received by taking a different action.

Variable Cost

Costs that directly correspond with the degree of production or output levels.

Period Costs

Costs that are not directly tied to production and are expensed in the period in which they are incurred, such as selling, general, and administrative expenses.