question archive Suppose a perfectly competitive firm is producing a level of output for which price equals average total cost, and average total cost is less than marginal cost
Suppose a perfectly competitive firm is producing a level of output for which price equals average total cost, and average total cost is less than marginal cost
Subject:EconomicsPrice:2.86 Bought3
Suppose a perfectly competitive firm is producing a level of output for which price equals average total cost, and average total cost is less than marginal cost. In order to maximize its profits, the firm should
- A.
- reduce its output.
- B.
- expand its output.
- C.
- increase the market price.
- D.
- not change its output.
- E.
- shut down.
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B.Expands its output
Step-by-step explanation
When a perfectly competitive firm produces a greater quantity of output it will lead to steady increase of revenue at a constant rate that is determined by the given market price. Profits will be highest at the quantity of output where the total revenue exceeds the total cost by a greater mount.
