A perfectly competitive firm is producing the profit-maximizing output level when their variable cost decreases. If the market price does not change, to maximize profit, the firm will need to ______.

Question

Quizplus · Accepted Answer

If the firm is currently producing the profit-maximizing output level, then it means that it is producing the level of output where marginal cost (MC) equals marginal revenue (MR). If the variable cost decreases, then the marginal cost decreases as well. This means that the new MC curve will intersect with the original MR curve at a higher level of output, implying that the firm can increase its profits by producing more. Therefore, the firm should increase its production to maximize profit.

A Perfectly Competitive Firm Is Producing the Profit-Maximizing Output Level