The Speedy Typesetting Company, a perfectly competitive firm, is currently producing where P = MC and is earning a normal profit. The firm mainly employs minimum wage workers and the government just increased the minimum wage from $7.25 to $9.55 per hour. In the short run, this firm will most likely
A) reduce the amount of output it produces because its cost curves have shifted up and to the left.
B) continue to produce the same amount of output because only its fixed costs have increased.
C) produce more units of output to increase revenue to cover the additional fixed costs.
D) shut down because it will no longer be earning a normal profit.

Question

Quizplus · Accepted Answer

The increase in minimum wage raises the firm's variable costs (since it mainly employs minimum wage workers), leading to an upward shift in the cost curves. This typically results in a reduction of output in the short run as the firm adjusts to higher costs per unit of production.

The Speedy Typesetting Company, a Perfectly Competitive Firm, Is Currently