Selling a good at a price determined by the intersection of the demand curve and the marginal cost curve is consistent with the i) socially-optimal level of output.
Ii) market solution for profit-maximizing competitive firms.
Iii) market solution for a profit-maximizing monopoly.
A) i) and ii) only
B) ii) and iii) only
C) i) and iii) only
D) i), ii), and iii)

Question

Quizplus · Accepted Answer

Selling a good at a price determined by the intersection of the demand curve and the marginal cost curve is consistent with both the socially-optimal level of output (where marginal cost equals marginal benefit) and the market solution for profit-maximizing competitive firms (where price equals marginal cost). However, it is not consistent with the market solution for a profit-maximizing monopoly, as a monopoly would have market power and would charge a higher price than the one determined by the intersection of the demand curve and the marginal cost curve.

Selling a Good at a Price Determined by the Intersection