Pappy's Popcorn Emporium operates in a perfectly competitive industry and hires you as an economic consultant. Pappy's is currently producing at a point where market price equals its marginal cost. Its total revenue exceeds both its total variable cost and its total cost. You advise Pappy's to
A) cease production immediately because it is incurring a loss.
B) raise its price so that it can increase its profit.
C) continue to produce in the short run to maximize its profit.
D) lower its price immediately in anticipation of new firms entering the industry.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms maximize profit by producing where price equals marginal cost. If total revenue exceeds both total variable cost and total cost, the firm is making a profit. Therefore, continuing to produce in the short run is the best option to maximize profit.

Pappy's Popcorn Emporium Operates in a Perfectly Competitive Industry and Hires