In response to a decrease in the market demand, to maximize short- run profits, managers of perfectly competitive firms will______ _ production and move______ along the marginal cost curve.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, individual firms have no power to influence the market price, so they can only maximize short-run profits by producing where marginal cost equals market price. If the market demand decreases, the market price will also decrease. To maintain the profit-maximizing level of output, firms need to decrease their production to reduce costs and move downward along the marginal cost curve. Therefore, Choice A is correct.

In Response to a Decrease in the Market Demand, to Maximize