If price is less than marginal cost,a perfectly competitive firm should decrease output because
A)Marginal costs are increasing.
B)Total revenues are decreasing.
C)The firm is producing units that cost more to produce than the firm receives in revenue,thus reducing profits (or increasing losses).
D)Marginal revenue is decreasing.

Question

Quizplus · Accepted Answer

If the price is less than the marginal cost, it means that the firm is producing units that cost more to produce than what it receives in revenue. This reduces profits or increases losses for the firm. In a perfectly competitive market, firms aim to maximize profits, so it would make sense for the firm to decrease output in order to reduce costs and improve profitability. Options A, B, and D are not directly relevant to the situation described in the question.

If Price Is Less Than Marginal Cost,a Perfectly Competitive Firm