The Ajax Manufacturing Company is selling in a purely competitive market. Its output is 100 units, which sell at $4 each. At this level of output, total cost is $600, total fixed cost is $100, and marginal cost is $4. The firm should
A) reduce output to about 80 units.
B) expand its production.
C) continue to produce 100 units.
D) produce zero units of output.

Question

Quizplus · Accepted Answer

The firm should produce zero units because it is incurring a loss. Total revenue ($400) is less than total cost ($600), and since price equals marginal cost, the firm is not covering its average variable costs.

The Ajax Manufacturing Company Is Selling in a Purely Competitive