Posted by D on .
Heres one IM SURE economist will enjoy... Always saying MC = MR :)
Please help... I know its something to do with Perfectly competitive firms being price takers! right??
“In both monopoly and perfect competition the profit maximizing output is at the level at which MR = MC, but only in the latter is the optimum output level such that P = MC”.
Explain the above statement by comparing the model of perfect competition with that of monopoly.
Under the monopoly, AR and MR curveds differ each other and both are falling. MR curve remains below the AR curve . So price is not equal to not equal to MC. But under Perfect Competion MR and AR are the identical . Hence the price and Mc is equal to each other.
Explain how demand, price elasticity and total revenue are all related to each other.please also explain this using at least two example that incorporates all three concepts