Figure 6.2
-Figure 6.2 shows the cost structure of a firm in a perfectly competitive market. Suppose the current market price is $6 and the firm produces at a given output level. If the firm's total fixed cost increases due to a new government regulation,the short-run response of the firm should be to

Question

Quizplus · Accepted Answer

In the short run, a firm in a perfectly competitive market will continue to produce at its current output level if the market price covers its variable costs, regardless of changes in fixed costs. Since the question does not indicate that the market price or variable costs have changed, the firm should continue to produce its current output level. Fixed costs do not affect the firm's short-run decisions about output levels because they are incurred regardless of the level of production.

Figure 6.2 -Figure 6.2 Shows the Cost Structure of a Firm in Firm