Which of the following is applicable to a monopolistic firm operating at the output where marginal cost equals marginal revenue?
Question 1 Report
Which of the following is applicable to a monopolistic firm operating at the output where marginal cost equals marginal revenue?
Answer Details
A monopolistic firm operating at the output where marginal cost equals marginal revenue is said to be in a state of equilibrium or profit maximization. At this point, the firm is producing the quantity of output where the last unit produced generates as much revenue as it costs to produce. Therefore, the firm's profit is at its maximum since any additional production would lead to an increase in the cost of production, which would not be matched by a corresponding increase in revenue. The price at this point will be higher than the marginal cost, and the firm will be able to cover its fixed and variable costs. Thus, the correct option is: Price is above marginal revenue.
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