A perfectly competitive firm is producing the profit-maximizing output level when their variable cost increases. If the market price does not change, to maximize profit, the firm will need to______ .

Question

Quizplus · Accepted Answer

If the variable cost increases, it means that the firm's marginal cost will also increase. As a result, the firm's profit-maximizing output level is now lower than before, because the increased marginal cost reduces the profit margin for each unit sold. Therefore, to maximize profit, the firm should decrease production and sell only the output level where marginal cost equals marginal revenue, which is now lower due to the increase in variable cost.

A Perfectly Competitive Firm Is Producing the Profit-Maximizing Output Level