A Profit-Maximizing fiRm Is Producing an Output of 300 Units

question 14

Multiple Choice

A profit-maximizing firm is producing an output of 300 units where price is £10 per unit and average total cost is £8 per unit. Given that the firm operates in a perfectly competitive market, which of the following is likely to be true?

• A) The firm will stop production and exit the market.
• B) The firm will sell each unit of the product at a higher price.
• C) The market supply curve will shift to the right.
• D) The existing firms will exit the industry.

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Definitions:

Mixed Cost

Expenses that have both fixed and variable components, varying with the level of activity but not in direct proportion.

High-low Method

A technique used in cost accounting to estimate variable and fixed costs based on the highest and lowest levels of activity.

Fixed Manufacturing Cost

Costs that do not change with the level of production, such as rent, salaries, and insurance.

Fixed Manufacturing Cost

Expenses that do not change with the level of production, such as rent, salaries, and equipment depreciation in a manufacturing setting.