If a perfectly competitive firm is producing the profit-maximizing output level when their variable cost increase, with no change in the market price, the new profit- maximizing output level will be found below their current output level.

Question

Quizplus · Accepted Answer

If variable costs increase, the firm's marginal cost curve will shift upward. This means that at the current output level, the marginal cost will be higher than the market price, resulting in a loss. To maximize profits, the firm will need to reduce output to where marginal cost equals market price, which will be at a lower output level than before.

If a Perfectly Competitive Firm Is Producing the Profit-Maximizing Output