If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should
A)increase its output.
B)reduce its output.
C)keep output constant and enjoy the above normal profit.
D)lower the price.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the firm is a price taker and has to accept the market price. If the market price exceeds the marginal cost of production, then the firm can increase its profits by producing more output. This is because the additional revenue from selling the extra output will exceed the additional cost of producing it. Therefore, the best choice is to increase output.

If, for a Perfectly Competitive Firm, Price Exceeds the Marginal