Use the following statements to answer this question: I. Under perfect competition, an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) also shifts the average variable cost curve upward.
II) Under perfect competition, an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) reduces firm output but may increase firm profits.
A) I and II are true.
B) I is true and II is false.
C) II is true and I is false.
D) I and II are false.

Question

Quizplus · Accepted Answer

I is true because the marginal cost curve intersects the average variable cost curve at its lowest point, so if the marginal cost increases, it will also pull the average variable cost curve upward. II is false because under perfect competition, firms are price takers and cannot influence the market price. An increase in marginal cost would reduce output and profits, as firms adjust output to where price equals marginal cost, and higher costs at any output level would reduce profit margins.

Use the Following Statements to Answer This Question: I