The Only Case Where Profit-Maximising Production Decisions by Firms Will

question 109

Multiple Choice

The only case where profit-maximising production decisions by firms will drive price to equal marginal cost are when:

• A)there are only two sellers
• B)many sellers sell products that are slightly differentiated
• C)there is only one seller
• D)many sellers sell products that are identical

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Definitions:

Profit Maximizing

The process by which a firm determines the price and output level that returns the greatest profit, often involving analysis of marginal costs and marginal revenues.

Shutdown

The short-term decision by a firm to cease production due to operating at a loss, where total revenue is not covering variable costs.

Implicit Costs

These refers to the opportunity costs that are not directly paid or incurred but represent the foregone benefits from using resources in a particular way.

Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs, indicating the financial success exceeding the opportunity cost of resources.