A Perfectly Competitive Firm Is Producing More Than the Profit-Maximizing

question 131

Multiple Choice

A perfectly competitive firm is producing more than the profit-maximizing amount of its product. You can conclude that its

• A) total cost exceeds its total revenue.
• B) average total cost exceeds the price of the product.
• C) marginal revenue is less than the price of the product.
• D) marginal cost exceeds the price of the product.

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Definitions:

Excess Capacity

describes a situation where a firm produces less than its total output capacity, usually resulting in inefficiencies and higher production costs.

Economic Profit

The difference between total revenue and total economic costs, including both explicit and implicit costs, reflecting the true profitability of a firm.

Elastic

A characteristic of supply or demand that indicates a high responsiveness to changes in price.

Monopolistic Competitor

A firm operating in a market structure where many companies sell products that are similar but not identical, allowing for some degree of market power and price setting.