​Consider a Firm Operating in a Perfectly Competitive Market

question 392

Multiple Choice

​Consider a firm operating in a perfectly competitive market. At its current output of 200 units, marginal revenue is $25. At this output, average total cost is decreasing and equals $22. Given this information, what should the firm do?

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

---

Definitions:

Equilibrium Price

The price at which the quantity of goods demanded equals the quantity of goods supplied.

Excess Demand

Excess demand occurs when the quantity demanded of a product or service exceeds the quantity supplied at the current price, leading to shortages.

Excess Supply

A market situation where the quantity of a good or service offered is greater than the quantity demanded by consumers.

Supply

The total amount of a product or service available for purchase at any given time in the market.