Price versus Marginal Cost
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The wise business manager knows the best price and cost scenario occurs when the
price of the company's product equals marginal cost. Explain why this is so.
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Solution Summary
The wise business manager knows the best price and cost scenario occurs when the
price of the company's product equals marginal cost. Explain why this is so.
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Price vs. Marginal cost
The wise business manager knows the best price and cost scenario occurs when the price of the company's product equals marginal cost. Explain why this is so.
Executive Summary
For the wise business manager in perfect competition this means, in the short-run, that price is equal to marginal cost and equal to marginal revenue. In the long-run, price is also equal to average cost. In theory, perfect competition generates the perfect price, i.e. the price reflects the true value of the commodity ensuring the 'efficient' allocation of resources, i.e. inputs. Furthermore, the inability of individual participants to affect price or cost variables insures that anonymous, impersonal market forces determine the outcome of exchange. In perfect competition there can be no long-run economic profits or losses ...
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