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).

Question

Quizplus · Accepted Answer

If the price is less than the marginal cost, it means that the firm is incurring losses on producing and selling each unit. In such a case, it would be best for the firm to decrease output, as producing more units would increase losses further. Therefore, option C is the correct choice as it explains the reason for decreasing output in a perfectly competitive market.

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