The profit-maximizing rule MR = MC is:
A) followed by a monopoly, but not a perfectly competitive firm.
B) followed by a perfectly competitive firm but not by a monopoly.
C) followed by any firm.
D) not followed by a monopoly, because it would reduce economic profit to zero.

Question

Quizplus · Accepted Answer

The profit-maximizing rule of setting marginal revenue (MR) equal to marginal cost (MC) is followed by any firm, regardless of market structure. This is because this rule ensures that the firm produces the quantity of output at which the extra benefit equals the extra cost, resulting in the highest possible profit level. Even though a monopoly has the ability to set prices and doesn't face a perfectly elastic demand curve like a perfectly competitive firm, it still must ensure that its marginal revenue equals its marginal cost to maximize profits in the short run.

The Profit-Maximizing Rule MR = MC Is