Assume Dell Computer Company operates in a perfectly competitive market producing 5,000 computers per day. At this output level, price exceeds this firm's marginal cost. To maximize profits, Dell should
A) make no adjustments as they are already maximizing their profits.
B) increase their output.
C) decrease their output.
D) stop producing since it is earning a loss.

Question

Quizplus · Accepted Answer

Since Dell is operating in a perfectly competitive market, the price it receives for each computer sold is higher than its marginal cost. This means that the marginal revenue the firm receives from selling an additional computer is higher than the marginal cost of producing it, resulting in positive profits. To maximize profits, Dell should continue to increase its output until marginal revenue equals marginal cost. Therefore, the best choice for Dell is to increase their output.

Assume Dell Computer Company Operates in a Perfectly Competitive Market