For a Firm in Perfect Competition, a Diagram Shows Quantity

question 90

Multiple Choice

For a firm in perfect competition, a diagram shows quantity on the horizontal axis and both the firm's marginal cost (MC) and its marginal revenue (MR) on the vertical axis. The firm's profit-maximizing quantity occurs at the point where the

• A) slope of the MC curve is zero.
• B) MC and MR curves are parallel.
• C) MC curve intersects the MR curve from below, going from left to right.
• D) MC curve intersects the MR curve from above, going from left to right.

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Definitions:

Fixed Costs

Expenses that do not change in proportion to the activity of a business, such as rent, salaries, and insurance.

Pretax Income

The amount of income earned by a business before paying income taxes.

Variable Costs

Expenses that change in proportion with the level of production or business activity, such as materials and labor directly involved in manufacturing.

Fixed Costs

Costs that remain constant for a set period of time, regardless of changes in the level of activity or volume of output.