Figure 7.5 Figure 7.5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 7.5.The figure shows the cost structure of a firm in a perfectly competitive market.If the firm's fixed cost increases by $1000 due to a new environmental regulation,what happens to its profit-maximising output level?
A) It increases.
B) It decreases.
C) It remains the same.
D) It could increase, decrease, or remain constant, depending on whether the firm is able to cut costs somewhere else.

Question

Figure 7.5  Figure 7.5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 7.5.The figure shows the cost structure of a firm in a perfectly competitive market.If the firm's fixed cost increases by $1000 due to a new environmental regulation,what happens to its profit-maximising output level?
A) It increases. 
B) It decreases. 
C) It remains the same. 
D) It could increase, decrease, or remain constant, depending on whether the firm is able to cut costs somewhere else.

Quizplus · Accepted Answer

In a perfectly competitive market, the profit-maximizing output level is determined by where marginal cost equals marginal revenue. An increase in fixed costs does not affect marginal cost, so the profit-maximizing output level remains the same.

Figure 75 Figure 7