When Price Is Greater Than Marginal Cost for a Firm

question 205

Multiple Choice

When price is greater than marginal cost for a firm in a competitive market,what should the firm do to maximize profit

• A)The firm should increase production since its marginal cost is falling.
• B)The firm must be minimizing its losses since its marginal cost is rising.
• C)There are opportunities to increase profit by increasing production.
• D)The firm should decrease output to maximize profit.

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Definitions:

Fixed Budget

A budget that remains constant, regardless of changes in the volume of activity, sales, or other factors.

Direct Materials Quantity Variance

The difference between the actual amount of materials used in production and the expected amount.

Pounds

A unit of weight commonly used in the British imperial and United States customary systems, equivalent to 0.453592 kilograms.

Contribution Margin

The difference between sales revenue and variable costs, used to cover fixed costs and profit.