A perfectly competitive firm is currently producing an output level where price is $10.00,average variable cost is $6.00,average total cost is $10.00,and marginal cost is $8.00.In order to maximize profits,this firm should
A)produce zero output.
B)decrease its output.
C)increase its output.
D)increase the market price.
E)not change its output - this firm is at its profit-maximizing position.

Question

Quizplus · Accepted Answer

This firm is currently producing at a point where price is equal to average total cost (ATC). Therefore, it is earning zero economic profit. To maximize profit, the firm should produce at a point where marginal cost (MC) equals price. In this case, the marginal cost is less than the price. This suggests that the firm can increase its profit by increasing its output. As such, the firm should increase its output until MC equals price, which in this case would mean increasing its output. Therefore, the correct choice is C.

A Perfectly Competitive Firm Is Currently Producing an Output Level