Suppose a perfectly competitive firm can increase its profits by reducing its output. Then it must be the case that the firm's:
A) marginal revenue equals its marginal cost.
B) price exceeds its marginal cost.
C) price exceeds its marginal revenue.
D) marginal cost exceeds its marginal revenue.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, a firm maximizes profit where marginal cost equals marginal revenue. If reducing output increases profit, it means marginal cost exceeds marginal revenue, indicating the firm is producing too much.

Suppose a Perfectly Competitive Firm Can Increase Its Profits by Reducing