Question

State true or false, and briefly explain:
a. A firm that wants to maximize profits will choose to produce an output where MR = MC, and MC is increasing.
b. Generally, a profit maximizing firm will not price a product in the elastic segment of the products demand curve.
c. To successfully price discriminate, firms have to prevent resale between different segments.
d. According to Porter’s Analysis, threat of substitutes refers to competition between incumbent firms within an industry.
e. Generally, in the short run, a profit maximizing firm will set a price which will be a mark-up over ATC.
f. According to Porter’s Analysis, supplier power refers to the power a firm like Walmart exerts on its suppliers.

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a.
True. The firm can enjoy a lower marginal cost by producing more if the MC is decreasing. Because MR is always increasing, the output level where MR=MC may not be optimal because MC may become lower than the MR if the firm increases the output. In that case, the firm make further profit by producing more....

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