The figure given below shows the revenue and cost curves of a perfectly competitive firm.Figure 10.1

-At an output level above the profit-maximizing level, for a perfectly competitive firm, a reduction in output will:

Question

The figure given below shows the revenue and cost curves of a perfectly competitive firm.Figure 10.1
 
-At an output level above the profit-maximizing level, for a perfectly competitive firm, a reduction in output will:

Quizplus · Accepted Answer

At an output level above the profit-maximizing level, the marginal cost (MC) of producing an additional unit of output exceeds the marginal revenue (MR) earned from selling that unit. Therefore, producing and selling additional units reduces profits. If the firm reduces output, it will reduce its total cost by a greater amount than its total revenue, resulting in higher profits. Thus, the reduction in output will reduce total cost more than total revenue. Therefore, option B is the correct answer.

The Figure Given Below Shows the Revenue and Cost Curves