Suppose That in a Perfectly Competitive Industry, the Market Price

question 96

Multiple Choice

Suppose that in a perfectly competitive industry, the market price of the product is $6. A firm is producing the output level at which average total cost equals marginal cost, both of which are $8. Average variable cost is $4. To maximize its profits in the short run, the firm should

• A) leave its output unchanged.
• B) -- there is insufficient information to know.
• C) reduce its output.
• D) expand its output.
• E) shut down.

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Definitions:

Expectancy Theory

A motivational theory suggesting that individuals decide how to behave based on their expectations that the effort will lead to a certain outcome and the value of that outcome to them.

Research Follow-up

The process of collecting additional information or data after an initial investigation to clarify results or answer new questions.

Practical

Focused on or concerned with the actual doing or use of something rather than with theory and ideas.

Interpret

The act of explaining or providing the meaning of something, often requiring analysis of data, text, or artwork.