A Firm in Competitive Price-Taker Market Is Maximizing Profit at Q

question 35

Multiple Choice

A firm in competitive price-taker market is maximizing profit at Q = 3,000. Then its fixed cost increases. The profit-maximizing output is now

• A) greater than 3,000 and profit decreases
• B) less than 3,000 and profit decreases
• C) greater than 3,000 and profit is unchanged
• D) equal to 3,000 and profit decreases
• E) equal to 3,000 and profit increases

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Definitions:

Perfect Competition

A market structure characterized by a large number of buyers and sellers, freely entering or exiting the market, selling identical products.

Average Total Cost

The total cost of production divided by the quantity produced, encompassing both fixed and variable costs.

Excess Capacity

The situation where a firm or economy can produce more goods or services than currently demanded, often leading to underutilization of resources.

Average Total Cost

The total cost of production divided by the total output, representing the cost per unit of production.