Suppose That in a Perfectly Competitive Industry,the Market Price of the Product

question 27

Multiple Choice

Suppose that in a perfectly competitive industry,the market price of the product is $27.A firm is producing the output level at which average total cost equals marginal cost,both of which are $25.Average variable cost is $23.To maximize profits in the short run,the firm should

• A)reduce its output.
• B)increase its output.
• C)leave its output unchanged.
• D)shut down.
• E)change the price of the product.

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Definitions:

Market Price

The price of a commodity when sold in a competitive marketplace, determined by the supply and demand for the commodity.

Profit

The financial gain realized when the revenue generated from business activities exceeds the expenses, costs, and taxes needed to sustain the business.

Short-Run

A period in which at least one factor of production is considered fixed, affecting the ability of businesses to change production levels.

Marginal Cost Curve

A graphical representation showing how the cost of producing one more unit of a good varies with the level of production.