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Microeconomics CLEP question?
#1
I just finished reading a chapter in a Microeconomics textbook that stated the following:

1. Price = Marginal Revenue (P = MR) in a perfectly competitive firm.

and

2. Price = Marginal Cost (P = MC) in a profit-maximizing firm.


My questions:

1. Why would price be equal to marginal revenue? Isn't marginal revenue widely variable, because it's the extra revenue brought in by one more unit of production? How would that be applicable to the price level of a firm's total unit of production?

2. If price was equal to the marginal cost, how would that maximize profits? In that case, wouldn't you want the price to be MORE than the marginal cost?

I'm just not at all clear on how these two statements are fact. They don't make sense to me. Is anyone able to clear these up for me?

Thanks in advance!

MC
Working towards a BA in Business Administration at AMU

Tests Taken:
CLEP Humanities (2002) - passed
CLEP English w/Composition (2002) - passed
CLEP Biology (2005) - passed w/ a 56
CLEP US History I (2006) - passed w/ a 66
CLEP US History II (2009) - passed w/ a 71
CLEP English Literature (2009) - passed w/ a 69
CLEP Introductory Psychology (2009) - passed w/ a 66
DANTES Human Resource Management (2009) - passed w/ a 70
DANTES Organizational Behavior (2009) - passed w/ a 70
CLEP Macroeconomics (2009) - passed w/ a 66
CLEP Microeconomics (2009) - passed w/ a 62

[SIZE="2"][SIZE="3"]Done with testing as of July 2009, now on to coursework![/SIZE][/SIZE] :o
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