Suppose a Perfectly Competitive Firm Is Producing a Level of Output

question 86

Multiple Choice

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) shut down.
• B) not change its output.
• C) reduce its output.
• D) increase the market price.
• E) expand its output.

---

Definitions:

Zero-Coupon Bond

A type of bond that does not pay periodic interest payments and is instead issued at a deep discount to its face value.

Implicit Interest

The cost of borrowing that is not explicitly stated as an interest rate, often factored into the terms of leases or other financial agreements.

Face Value

The nominal or dollar value printed on a security, such as a bond or stock, representing its legal worth.

Effective Annual Yield

The interest rate on an investment or loan, which is compounded more than once per year, represented as an annual rate.