The Speedy Typesetting Company, a perfectly competitive firm, is currently producing where P = MC and is earning a normal profit. The yearly licensing fee that this firm must pay for the use of a statistical software program was just increased from $1,000 to $1,200. 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

In the short run, an increase in fixed costs, such as a licensing fee, does not affect the firm's decision on the quantity of output to produce as long as it covers its variable costs and continues to make a normal profit. The firm's decision on how much to produce is based on marginal costs and marginal revenue, not fixed costs.

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