Suppose a Perfectly Competitive Firm Is Producing a Level of Output

question 152

Multiple Choice

Suppose a perfectly competitive firm is producing a level of output for which price equals average total cost,and average total cost is less than marginal cost.In order to maximize its profits,the firm should

• A)reduce its output.
• B)expand its output.
• C)produce zero output.
• D)increase the market price.
• E)not change its output.

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Definitions:

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to products, calculated based on estimated costs and activity levels.

Direct Labor-hours

The total hours worked by employees that can be directly associated with the production of goods or services.

Manufacturing Overhead

All indirect costs related to the production process, including salaries, maintenance, and utilities, not directly attributable to specific units produced.

Unit Product Cost

The total cost to produce one unit of a product, calculated by dividing the total production costs by the number of units produced.