A Firm Sells a Product in a Purely Competitive Market

question 21

Multiple Choice

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $4.00 and the market price is $4.50. What should the firm do?

• A)shut down if the minimum possible average variable cost is below $4.50
• B)decrease output if the minimum possible average variable cost is below $4.50
• C)increase output if the minimum possible average variable cost is below $4.50
• D)increase output if the minimum possible average variable cost is above $4.50

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Definitions:

Agent

An individual or entity authorized to act on behalf of another, known as the principal, in business transactions or other matters.

Liable

Being legally responsible for something, especially in terms of owing compensation or facing legal penalties for wrongful actions.

Subagent

An agent appointed by another agent with the principal's approval, to perform tasks or duties related to the principal's assignment.

Authorization

The formal permission granted by a competent authority to carry out a specific action or process.