A Perfectly Competitive Firm Can Produce Its Current Level of Output

question 149

Multiple Choice

A perfectly competitive firm can produce its current level of output at an average total cost of $10 and a marginal cost of $8. If the market price of the product is currently $8, what should the firm do?

• A)The firm should definitely shut down since average total cost exceeds price.
• B)The answer depends upon the relationship between price and average variable cost.The firm should shut down if average variable cost is $8 or greater, but the firm should continue to produce the current level of output if average variable cost is less than $8.
• C)The firm should increase production in order to increase profit.
• D)The firm should continue to produce, but they should decrease production in order to increase profit.

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Definitions:

Meaningfulness

The significance or value that work holds for an individual, often contributing to motivation and job satisfaction.

Heading

The title or caption of a section within a document, used to introduce or summarize its content.

Material

Physical substances from which things can be made or actual constituents that have significant importance or relevance to a subject or issue.

Delaying Action

A tactical maneuver designed to slow down or hold up an opposing force or process.