Rather simple question, Competitive Markets..but

CFA Level I
#1

Hey Guys, The following from Schweser… A perfectly competitive firm will not expand its output beyond the quantity where: A) its marginal revenue is positive. B) the marginal cost is greater than marginal revenue. C) the marginal revenue is greater than price. D) the market price is equal to its marginal cost. A perfectly competitive firm will tend to expand its output so long as the market price is greater than marginal cost. In the short term and long term, profit is maximized when P = MC. Sure D is correct, but how about B, does it not state the same? Could be i’m starting to loose it, been grafting for 13+ cheers

#2

I agree with you. Price is the MR for perfect competition isn’t it?

#3

Schweser sucks

#4

lol, yeah i’ve been starting to come to the same conclusion. Anyways thanks for the confirmation.

#5

i would have answered B

#6

I think It is D, the question asked ‘will not expand its output beyond the quantity where’ MC=MR. Answer B: marginal cost is greater than marginal revenue is beyond MR=MC, so it is wrong. I hope it’s correct.

#7

Will not expand beyond MC=MR what does that mean: it means exactly the same as MC not being greater than MR. If it’s not greater than it must be less than or equal.

#8

Ugh, B is the correct microeconomic answer. Sell up to the point where MR=MC; don’t sell if MR < MC, because doing so means you’ve lost money. D sounds correct too, b/c Price = MR, and MR=MC at maximum profitability. BTW, the real CFAI answers tend to have clearer answers than either Stalla or Schwesser practice questions (CFAI seems to have a much more thorough pre-testing process regarding ambiguous questions). Just, when you get to Level 3, watch out for socially responsible investments, which sound small-cap biased but might be growth biased. :-p

#9

B isn’t correct if you read the English again. A perfectly competitive firm will not expand its output beyond the quantity where the marginal cost is greater than marginal revenue. If you think the above statement is correct, it means that the PC firm will STILL produce AT the point where MC > MR which is wrong. PC firm will not produce BEYOND the point at P=MC.