If a profit-seeking competitive firm is producing its profit-maximizing output and its total fixed costs fall by 25 percent, the firm should
A) use more labor and less capital to produce a larger output.
B) not change its output.
C) reduce its output.
D) increase its output.

Question

Quizplus · Accepted Answer

A change in total fixed costs does not affect the marginal cost of production, which is what determines the profit-maximizing output level in the short run. Therefore, the firm should not change its output.

If a Profit-Seeking Competitive Firm Is Producing Its Profit-Maximizing Output