What action should a perfectly competitive firm take if,at its present output,MC is both increasing and is greater than the price and the price is greater than the average variable cost?

Question

Quizplus · Accepted Answer

If MC is increasing and greater than the price, it means that the firm is producing output beyond the point where marginal cost equals the price. This indicates that the firm is no longer maximizing profit at its current output level. If the price is greater than the average variable cost, it indicates that the firm is covering its variable costs and some portion of fixed costs. Therefore, in this situation, the best choice for the firm is to decrease its output to the point where MC equals price to maximize profit. If the firm shuts down, it would incur losses equal to its fixed costs, and increasing output or raising prices would not be beneficial as they would further reduce profits.

What Action Should a Perfectly Competitive Firm Take If,at Its