Exhibit 12-5 Refer to Exhibit 12-5.A profit-maximizing firm in a perfectly competitive industry will produce ____ units of output if the market price equals $10.

Question

Exhibit 12-5  Refer to Exhibit 12-5.A profit-maximizing firm in a perfectly competitive industry will produce ____ units of output if the market price equals $10.

Quizplus · Accepted Answer

In a perfectly competitive market, the firm will produce where marginal cost equals price in the short run. From the graph, we can see that the marginal cost equals $10 at 400 units of output. However, producing 400 units of output would result in a loss for the firm since the average total cost is greater than $10 at that level of output. Therefore, the firm should not produce any output in the short run if the market price is $10. Thus, the answer is B.