A Perfectly Competitive Firm Is Currently Producing an Output Level

question 9

Multiple Choice

A perfectly competitive firm is currently producing an output level where price is $10.00, average variable cost is $6.00, average total cost is $10.00, and marginal cost is $8.00. In order to maximize profits, this firm should

• A) decrease its output.
• B) increase the market price.
• C) shut down.
• D) increase its output.
• E) not change its output -- this firm is at its profit- maximizing position.

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Definitions:

Corporation

A legal entity that is separate and distinct from its owners, who are shareholders, and is recognized as such by law with rights and liabilities that are distinct from those of its members.

Legal Entity

An organization or structure that has legal rights and obligations, including the ability to enter into contracts and sue or be sued.

Shareholders

Individuals or entities that own shares in a company, thus holding a portion of the company's ownership and sometimes entitled to dividends and a say in company decisions.

Joint Venture

A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task or project.