Answer to Question #71995 in Microeconomics for sln

Question

Are the following statement true, false or uncertain. Explain briefly.

a. If a firm is a price taker, its marginal revenue is equal to market price.
b. If a firm's marginal revenue is below its marginal cost, an increase in production will usually decrease profits.
c. If the price of an input falls, a firm would increase the use of that input for two reasons: Overall production costs are now lower and the firm can substitute this input for other relatively more expensive inputs.

Answer 1

a. If a firm is a price taker, its marginal revenue is equal to market price - true.
b. If a firm's marginal revenue is below its marginal cost, an increase in production will usually decrease profits - true.
c. If the price of an input falls, a firm would increase the use of that input for two reasons: Overall production costs are now lower and the firm can substitute this input for other relatively more expensive inputs - true.