Consider a perfectly competitive firm in the following position: output = 4000 units,market price = $1,fixed costs = $2000,variable costs = $1000,and marginal cost = $1.10.To maximize profits the firm should
A)reduce its output.
B)expand its output.
C)produce zero output.
D)increase the market price.
E)not change its output.

Question

Quizplus · Accepted Answer

The firm's marginal cost is higher than the market price, indicating that it is not profitable to produce an additional unit of output. Therefore, the firm should reduce its output to where the marginal cost equals the market price to maximize profits.

Consider a Perfectly Competitive Firm in the Following Position: Output