A competitive firm operating in the short run is maximizing profits and just breaking even.Its costs include a monthly state license fee of $100 that must be paid for as long as the firm operates.If the license fee is raised to $150,what should the firm do to maximize profits in the short run?

Question

Quizplus · Accepted Answer

Since the firm is just breaking even and maximizing profits, the increase in the fixed license fee does not affect its decision regarding output in the short run. The firm should continue producing the same quantity because fixed costs do not influence the marginal cost of production, which determines the profit-maximizing level of output.

A Competitive Firm Operating in the Short Run Is Maximizing