Consider a perfectly competitive firm in the following position: output = 4000 units, market price =
$1, fixed costs = $2000, variable costs = $1000, and marginal cost = $1.10. To maximize profits the firm should
A) reduce its output.
B) increase the market price.
C) not change its output.
D) expand its output.
E) shut down.

Question

Quizplus · Accepted Answer

The firm should reduce its output because the marginal cost ($1.10) is greater than the market price ($1), indicating that producing additional units decreases profit.

Consider a Perfectly Competitive Firm in the Following Position: Output