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If a statement is true, explain why; if it is false, identify the mistake and try to correct it.
a. A profit-maximizing firm should select the output level at which the difference between the market price and marginal cost is greatest.
b. An increase in fixed cost lowers the profit-maximizing quantity of output produced in the short run.

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An increase in the fixed cost is studied.

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a. False. Profit is maximized when MR (which is equal to P) is equal to MC, so that the difference between the two is zero.
The corrected statement ...

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