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

Total fixed costs do not affect the profit-maximizing output level of a competitive firm in the short run, as these costs are incurred regardless of the output level. The firm's decision on output is based on marginal costs and marginal revenue, not fixed costs.

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