If market demand increases, a competitive firm sees
A)its cost curves shift up.
B)its profit-maximizing output level increase.
C)its marginal cost fall.
D)its profits decrease.
E)the demand curve facing the firm shift down.

Question

Quizplus · Accepted Answer

When market demand increases, the price at which the firm can sell its output also increases. This leads to an increase in the marginal revenue curve, which intersects the marginal cost curve at a higher level of output. As a result, the profit-maximizing output level of the firm increases.

If Market Demand Increases, a Competitive Firm Sees