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JAMB Economics 1983 Question 10

Question 10

Market Structures

In perfect competition a firm's price is equal to its marginal revenue which is again equal to average revenue. This form maximizes its profits when its marginal cost (MC) is equal to price (P). Which of the curves in the diagram below represents the firm's marginal cost (MC)?

Diagram for this question
  1. A.Curve I
  2. B.Curve II
  3. C.Curve III
  4. D.Curve IV
  5. E.Curves I and III.
Show the answer and explanation

Answer: D (Curve IV)

Explanation

Curve I is the horizontal price line (P = MR = AR) and the U-shaped curve is average cost; the steeply rising curve IV that cuts through them is marginal cost.