Why do perfectly competitive firms maximize their profits by ...

[Tazate]

Why do perfectly competitive firms maximize their profits by producing so that the price is equal to marginal cost, but monopolists maximize their profits by setting a price that is greater than marginal cost?
 
  What will be an ideal response?

Question 2

If there are externalities present in a market, resources are allocated efficiently when marginal social cost equals marginal social benefit.
 
  Indicate whether the statement is true or false

[anoriega3]

Answer to Question 1

Both types of firms maximize profits by producing so that their marginal revenue equals their marginal cost. For perfect competitors, price also equals marginal revenue, and therefore, at maximum profits, price equals marginal cost.

Answer to Question 2

TRUE

[Tazate]

Thank you

[anoriega3]

No problemo