Scenario 9-1 Assume a certain competitive price-taker firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit.
Refer to Scenario 9-1. To maximize its profit, the firm should
A) increase its output.
B) continue to produce 1,000 units.
C) decrease its output, but continue to produce.
D) shut down.

Question

Quizplus · Accepted Answer

The firm should decrease its output because the marginal cost ($15) is greater than the price ($12), indicating that producing the last unit is not profitable. However, since the price is greater than the average total cost ($11), the firm should continue to produce to cover its costs and make a profit.

Scenario 9-1 Assume a Certain Competitive Price-Taker Firm Is Producing