D
Rule 1 of microeconomics
The optimal quantity for essentially everything is where marginal revenue = marginal cost
a.perfectly competitive firms.
b.oligopolistic firms.
c.perfectly competitive firms and oligopolistic firms.
d.none of the statements associated with this question are correct.
Rule 1 of microeconomics
The optimal quantity for essentially everything is where marginal revenue = marginal cost
Thank you, David.
Greatly appreciate it.
Marginal cost refers to the additional cost incurred by a firm to produce one additional unit of output. Marginal revenue, on the other hand, is the additional revenue generated by a firm when it sells one more unit of output.
In perfectly competitive markets, there are numerous firms selling identical products, and no single firm has control over the market price. Each firm is a price taker, meaning it must accept the market price as given. In this scenario, firms equate marginal cost with marginal revenue to maximize their profits. This is because, in a competitive market, a firm's marginal revenue equals the market price.
In contrast, oligopolistic firms operate in markets with only a few dominant players or firms that have significant control over the market. Unlike perfectly competitive firms, oligopolistic firms can exert some influence over the market price. These firms typically engage in strategic decision-making to maximize their profits, which may involve pricing strategies that do not necessarily equate marginal cost with marginal revenue.
Given this understanding, we can determine that the spirit of equating marginal cost with marginal revenue is not held by oligopolistic firms. Therefore, the correct answer is b. oligopolistic firms.