Consider a Perfectly Competitive Firm in the Following Position: Output

question 70

Multiple Choice

Consider a perfectly competitive firm in the following position: output = 4000,market price = $1,total fixed costs = $2000,total variable costs = $4500,and marginal cost = $1.To maximize profits the firm should

• A)reduce its output.
• B)expand its output.
• C)produce zero output.
• D)increase the market price.
• E)not change its output.

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Definitions:

Inelastic

Describes a situation where the demand or supply for a good or service is not significantly altered when the price changes.

Elastic

Elastic describes a situation in economics where the quantity demanded or supplied changes significantly in response to price changes.

Price Elasticity

The extent to which changes in price affect the demand for a specific good.

Completely Inelastic

A situation where the quantity demanded or supplied does not change regardless of changes in price.