Suppose a perfectly competitive firm reduces its output by 10 per cent.This means that its:

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the firm is a price taker and cannot influence the market price. Therefore, if the firm reduces its output by 10%, the market price will remain the same. However, since total revenue is directly proportional to the level of output, reducing output will also reduce total revenue. This is because the decrease in output will more than offset any increase in price that the firm may receive. Therefore, the correct answer is D, total revenue will decrease.

Suppose a Perfectly Competitive Firm Reduces Its Output by 10