Question: 1. A profit-maximizing firm determines the quantity by equating MR to MC. Does MR = MC always determine the profit-maximizing quantity? Consider, (a) a firm

1. A profit-maximizing firm determines the quantity by equating MR to

1. A profit-maximizing firm determines the quantity by equating MR to MC. Does MR = MC always determine the profit-maximizing quantity? Consider, (a) a firm who produces a good at a constant marginal cost MC = c = 1. The market demand is given by p = 5 - Q. In this case, does MR = MC determine the profit-maximizing quantity? If yes, what is the quantity and the price? What are the DL, CS and price elaticity of demand at the price you found? (b) Now consider the demand p = 5 - 0.5Q, and instead of marginal cost being constant is declining and is given by MC = 6 - 2Q. In this case, does MR = MC determine the profit-maximizing quantity? If no, what is the quantity and the price? What are the DL, CS and price elaticity of demand at the price you found? (c) What caution would you recommend for the most commonly used con- dition MR = MC

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