A Perfectly Competitive Firm Facing a Price of $10 Decides

question 61

Multiple Choice

A perfectly competitive firm facing a price of $10 decides to produce 100 units. If its marginal cost of producing the last unit is $12 and it is seeking to maximize profit, the firm should:

• A) produce more units.
• B) produce fewer units.
• C) continue producing 100 units.
• D) shut down.

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Definitions:

Unit Variable Cost

The variable cost associated with producing one additional unit of product.

Net Operating Income

A company's revenue minus its direct and indirect operating expenses, excluding taxes and interest, reflecting the profitability of its core business activities.

Monthly Sales

The total revenue generated from the sale of goods or services within a month.

Margin of Safety

The extent to which sales levels can fall before reaching the break-even point, serving as a cushion against financial loss.