Difference between price-marginal cost is measure of profit

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Evaluate each statement as true, false, or uncertain, and explain your answer.

a. In competitive markets, the difference between price and marginal cost is a measure of profit per unit output which is what firm seeks to maximize.

b. Many defense contractors have indicated that, contrary to popular opinion, the defense contracting business is highly competitive (i.e. perfectly competitive). If this is true, then in long run equilibrium the price is just high enough to cover average production costs and every contractor earns zero economic profit. Thus, if spending on defense is reduced, contractors will go out of business

Reference no: EM13898592

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