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(a) List and explain three characteristics of the marginal revenue/marginal cost (MR-MC) approach to determining the profit-maximizing output and price for the purely competitive firm.

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Retselisitsoe Pokothoane
Retselisitsoe PokothoaneLv10
5 Nov 2020

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Related questions

Why is the equality of marginal revenue and marginal cost essential for profit maximization in all market structures? Explain why the price can be substituted for marginal revenue in the MR=MC rule when an industry is purely competitive.

2. What is the profit-maximizing rule for firms? Explain why it makes sense. For a purely competitive firm, price equals marginal revenue. What is the profit-maximizing rule for purely competitive firms? Can you see why, if the price is set by the market and the firm

Marginal Cost, Revenue, and Pure Competition Assignment Worksheet
Directions
This assignment deals with the recognition and application of pure competition cost and revenue information that is graphically presented. Use the graph below to answer the following questions.
Microeconomic Problem

1. How do you know that the firm represented in the graph above is a purely competitive firm?

2. To maximize profits, this firm will produce at what output level(one letter)?

3. Explain why this MR=MC position is the profit-maximizing position for any firm.

4. What is the product price (one letter)?

5. What is this firm's average revenue (one letter)?

6. At profit-maximizing output, what is this firm's average variable cost (one letter)?

7. At profit-maximizing output, what four letters indicate:

Total revenue? (Remember, four letters' a rectangle.)

Total cost?

Total variable cost?

Total fixed cost?

Total economic profit?

8. If price falls below what point, this firm will not operate in the short run? (No letter needed, just an explanation.)

9. What will happen to this firm's price, output, and economic profit in the long run? Why?

10. Where will the price settle in the long run? Remember, all purely competitive firms are theoretically doomed to make an only normal profit in the long run. (Again, no letter answer, just an explanation.)

11. Why is the long-run equilibrium position of a purely competitive firm productively and allocatively efficient?

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