An industry analyst observes that in response to a small increase in price, a competitive firm's output sometimes rises a little and sometimes a lot. The best explanation for this finding is that:
A) the firm's marginal cost curve is random.
B) the firm's marginal cost curve has a very small positive slope.
C) the firm's marginal cost has a very large positive slope.
D) the firm's marginal cost curve is horizontal for some ranges of output and rises in steps.
E) the firm's marginal cost curve is downward sloping.

Question

Quizplus · Accepted Answer

The variability in output response to a small price increase can be best explained by a marginal cost curve that is horizontal for some ranges (indicating periods of constant marginal cost where output can increase without increasing cost per unit) and rises in steps (indicating discrete jumps in marginal cost at certain points, which would limit output increases). This structure allows for both small and large increases in output in response to price changes, depending on where the firm is operating along its marginal cost curve.

An Industry Analyst Observes That in Response to a Small