Suppose your firm operates in a perfectly competitive market and decides to double its output. How does this affect the firm's marginal profit?
A) Marginal revenue and marginal cost increase
B) Marginal revenue increases but marginal cost remains the same
C) Marginal cost may change but marginal revenue remains the same
D) Marginal revenue and marginal cost decrease

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the firm is a price taker, meaning that it has no control over the market price. As a result, the firm's marginal revenue is equal to the market price. When the firm doubles its output, the market price will remain the same, so the firm's marginal revenue will also remain the same. However, the firm's marginal cost may change, depending on the production technology.

Suppose Your Firm Operates in a Perfectly Competitive Market and Decides