The Profit-Maximizing Rule States That a Perfectly Competitive Firm

question 7

Multiple Choice

The profit-maximizing rule states that a perfectly competitive firm

• A) should not produce a unit of output if MC < MR.
• B) should stop production as soon as it experiences diminishing marginal returns.
• C) should produce the level of output at which MR = MC.
• D) produces too much output if MR > MC.

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Definitions:

Required Reserve Ratio

The fraction of deposits that regulators require a bank to hold in reserve and not lend out, in order to ensure bank stability and liquidity.

Excess Reserves

The funds that banks hold over and above the legally mandated minimum to safeguard bank liquidity, which can also be lent out.

Actual Reserves

The funds that a bank has on hand or deposited with the central bank, available for immediate use.

Net Worth

Assets minus liabilities; also called owners’ equity.