A Competitive Firm Has Been Selling Its Output for $20

question 362

Multiple Choice

A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price falls to $18, and the firm makes whatever adjustments are necessary to maximize its profit at the now-lower price. Once the firm has adjusted, its

• A)quantity of output is lower than it was previously.
• B)average total cost is lower than it was previously.
• C)marginal cost is higher than it was previously.
• D)All of the above are correct.

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Definitions:

Expected Returns

The anticipated return on an investment, taking into account all known risks and rewards associated with it.

Equilibrium

A condition or state in which economic forces are balanced, such as when supply equals demand in a market.

Expected Total Return

The anticipated return on an investment over a given period, including both capital gains and income from dividends or interest.

Constant

A fixed value in mathematics and physics that does not change, or a situation in finance where certain conditions, like interest rate, remain unchanged over a period.