Consider the following cost curves for two perfectly competitive firms, A and B. FIGURE 9-4
-Refer to Figure 9-4. If Firm B is producing at output level Q₂, and selling its output at p0, then FirmB should
A) shut down because at this price and output level the firm is suffering losses.
B) expand output to q0 so that profits will be maximized.
C) remain at this output level because profits are maximized when SRAVC is at its minimum.
D) expand output to Q₁ because profits are maximized when SRATC is at its minimum.

Question

Consider the following cost curves for two perfectly competitive firms, A and B.  FIGURE 9-4
-Refer to Figure 9-4. If Firm B is producing at output level Q₂, and selling its output at p0, then FirmB should
A) shut down because at this price and output level the firm is suffering losses. 
B) expand output to q0 so that profits will be maximized. 
C) remain at this output level because profits are maximized when SRAVC is at its minimum. 
D) expand output to Q₁ because profits are maximized when SRATC is at its minimum.

Quizplus · Accepted Answer

Firm B should expand output to q0 to maximize profits, as this is typically where marginal cost equals marginal revenue, leading to profit maximization.

Consider the Following Cost Curves for Two Perfectly Competitive Firms