In response to an increase in the market demand, to maximize short- run profits, managers of perfectly competitive firms will______ _ production by employing______ inputs.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms are price-takers and have no control over the market price. Therefore, to maximize profits in the short run, they need to increase production as long as marginal revenue is greater than marginal cost. This means they should employ more variable inputs to increase output, rather than increasing fixed inputs, which would require a longer time horizon and higher costs. Additionally, decreasing production by employing less variable inputs would result in lower profits, as long as the marginal revenue is greater than the marginal cost. Therefore, the best choice is to increase production by employing more variable inputs.

In Response to an Increase in the Market Demand, to Maximize