At an output level above the profit-maximizing one for a perfectly competitive firm,a reduction in output will:

Question

Quizplus · Accepted Answer

At the profit-maximizing output level, a perfectly competitive firm earns maximum profit where marginal cost equals marginal revenue. As output level increases beyond the profit-maximizing point, the marginal cost starts to exceed marginal revenue, indicating that the firm is incurring losses. Thus, reducing output will reduce both total revenue and total cost, but the reduction in total cost will be greater than the reduction in total revenue. This is because the reduction in output leads to a decrease in variable costs such as labor and raw materials, which are the major components of total cost. Therefore, option B is the correct answer.

At an Output Level Above the Profit-Maximizing One for a Perfectly