How Will a Profit-Maximizing Firm in a Perfectly Competitive Market

question 31

Multiple Choice

How will a profit-maximizing firm in a perfectly competitive market react to an increase in the short-run market demand curve?

• A) It will increase output because the marginal revenue curve shifts upwards.
• B) It will purchase more capital to increase its output.
• C) It will decrease output because more firms will enter the industry.
• D) It won't react because its demand curve is perfectly elastic.

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Definitions:

Stock Split

A corporate action where a company divides its existing stock into multiple shares to boost liquidity without changing overall market capitalization.

Total Market Value

The aggregate valuation of a company or asset in the marketplace, calculated by multiplying price by quantity of shares.

Improved Liquidity

Refers to an increase in the ease with which assets can be converted into cash without a significant loss in value.

Stock's Expected Price

An estimate of the future price of a stock based on earnings forecasts, market trends, and other factors.