Assume Cathy's Cupcake Company Operates in a Perfectly Competitive Market

question 136

Multiple Choice

Assume Cathy's Cupcake Company operates in a perfectly competitive market producing 10,000 cupcakes per day. At this output level, marginal cost exceeds this firmʹs price. Assuming price exceeds average variable cost, to maximize profits Cathy's should

• A) make no adjustments as they are already maximizing their profits.
• B) increase their output.
• C) decrease their output.
• D) stop producing since it is earning a loss.

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Definitions:

Joint Venture

Typically, an agreement between firms to create a separate, co-owned entity established to pursue a joint goal.

Existing Firms

Companies or enterprises that have been established and are currently operative in the marketplace.

Share Rights Plans

Strategic measures employed by companies to ward off hostile takeovers by diluting the value of shares held by potential acquirers.

Golden Parachute

A large financial compensation package guaranteed to a company executive in the event of a forced departure or takeover.