In a price-taker market, if a business produces efficiently (i.e., that is, where marginal revenues = marginal costs), the firm will be able to make at least a normal profit. True of False. Explain.

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To maximize profit, a price taker will expand its output as long as the sale of additional units adds more to revenues (marginal revenues) than to costs (marginal costs). Therefore, the profit-maximizing price taker will produce the output level at which marginal revenue (and price) equals marginal cost.

In a price-taker market, if a business produces efficiently (i.e., that is, where marginal revenues = marginal costs), the firm will be able to make at least a normal profit. True of False. Explain.

All firms produce where MR=MC. Price takers produce and price where P=ATC=MC=MR. That is the “normal profit” level. Profits above that level are considered “economic profits.” Review economic profits, normal profits, explicit costs, and implicit costs.