Multiple Choice
Suppose that marginal revenue for a perfectly competitive firm is $20. When the firm produces 10 units, its marginal cost is $20, its average total cost is $22 and its average variable cost is $17. Then, to maximise its profit in the short run, the firm
A) should shut down.
B) must decrease its output to increase its profit.
C) must increase its output to increase its profit.
D) should stay open and incur an economic loss of $20.
E) should not change its production because it is already maximising its profit and is making an economic profit.
Correct Answer:
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