Suppose a profit-maximizing firm in a perfectly competitive market is collecting $1,999 in total revenues. If the total cost of its fixed factors of production falls from $500 to $400, the firm will:
A)expand its output.
B)lower its price.
C)earn greater profits or smaller losses.
D)earn smaller profits or larger losses.

Question

Quizplus · Accepted Answer

A decrease in fixed costs decreases total cost but does not affect marginal cost. Thus, the firm will earn a greater profit (or smaller loss), but their output will not change.

Suppose a Profit-Maximizing Firm in a Perfectly Competitive Market Is