Suppose a firm operates in a perfectly competitive industry. At the current level of output, the marginal cost is $38 and the average total cost is $36 per unit. If the firm can sell one unit of its product for $37, the firm should increase its output.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, a firm should produce where marginal cost equals marginal revenue (price). Since the marginal cost ($38) is greater than the price ($37), the firm should not increase output as it would incur a loss on additional units.

Suppose a Firm Operates in a Perfectly Competitive Industry