Consider a Firm Operating in a Perfectly Competitive Market

question 190

Multiple Choice

Consider a firm operating in a perfectly competitive market. At its current output of 200 units, marginal revenue is $28. At this output, average total cost is minimized and equals $25. Given this information, what should the firm do?

• A)​Continue to produce 200 units, since costs per unit are minimized
• B)​Increase output beyond 200 units, since this higher output will yield the profit maximizing output level.
• C)​Decrease output below 200 units, since this lower output will result in the profit maximizing output level.
• D)​More information is needed to determine the firm's next step.

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Definitions:

Accumulated Depreciation

This accounts for the total depreciation expenses charged against a fixed asset since it was put into use, reflecting the decrease in value of the asset.

Income Summary

An account used in the closing process that summarizes revenues and expenses for a period, determining the net income or loss.

Owner's Drawings

Withdrawals made by the owner of a business from the company's funds for personal use.

Owner's Equity Accounts

Accounts reflecting the owner's investment in the business plus any profits retained in the business, minus any withdrawals made.