Zoe's Bakery operates in a perfectly competitive industry and has standard cost curves.The variable costs at Zoe's Bakery increase,so all of the cost curves (except fixed cost)shift upward.The demand for Zoe's pastries does not change,nor does the firm shut down.To maximize profits after the variable cost increase,Zoe's Bakery will _____ its price and _____ its level of production.

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In a perfectly competitive market, firms are price takers, so Zoe's Bakery cannot change the price. With increased variable costs, the marginal cost curve shifts up, leading to a decrease in the profit-maximizing level of production.

Zoe's Bakery Operates in a Perfectly Competitive Industry and Has