The figure given below shows the aggregate demand and supply curves of a perfectly competitive market.Figure 10.7

-If at the profit-maximizing level of output, a typical perfectly competitive firm's price is greater than its average total cost, the firm should increase output.

Question

The figure given below shows the aggregate demand and supply curves of a perfectly competitive market.Figure 10.7
 
-If at the profit-maximizing level of output, a typical perfectly competitive firm's price is greater than its average total cost, the firm should increase output.

Quizplus · Accepted Answer

At the profit-maximizing level of output, if a firm's price is greater than its average total cost, the firm is already making a profit. Increasing output beyond this point could lead to diminishing returns, where the additional cost of producing one more unit (marginal cost) could be higher than the price, thus not contributing to further profits.

The Figure Given Below Shows the Aggregate Demand and Supply