1. Marginal Analysis. Characterize each of the following statements as true or f
ID: 1254558 • Letter: 1
Question
1. Marginal Analysis. Characterize each of the following statements as true or false, and explain your answer.'a. If marginal revenue is less than average revenue, the demand curve will be downward sloping.
b. Profits will be maximized when total revenue equals cost.
c. Given a downward-sloping demand curve and positive marginal costs, profit-maximizing firms will always sell less output at higher prices than will revenue-maximizing firms.
d. Marginal cost must be falling for average cost to decline as output expands.
e. Marginal profit is the difference between marginal revenue and marginal cost and will always equal zero at the profit-maximizing activity level.
Explanation / Answer
a) True. The demand curve is the average revenue curve. Since average revenue is falling along a downward sloping demand curve, marginal revenue is less than average revenue. b) False. Profits are maximized when marginal revenue equals marginal cost. Profits equal zero at the breakeven point where total revenue equals total cost. c) True. Profit maximization involves setting marginal revenue equal to marginal cost. Revenue maximization involves setting marginal revenue equal to zero. Given a downward sloping demand curve and positive marginal costs, revenue maximizing firms will charge lower prices and offer greater quantities of output than will profit maximizers. d) False. Average cost will fall as output expands so long as marginal cost is simply less than average cost. If this condition is met, average cost will decline whether marginal costs are falling, rising or constant. e) True. Marginal profit equals marginal revenue minus marginal cost, and will equal zero at the profit maximizing activity level. Enjoy ur self and don't forget to rate..... :)
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.