A Perfectly Competitive Firm Facing a Price of $4

question 151

Multiple Choice

A perfectly competitive firm facing a price of $4.00 is currently producing an output level where average variable cost is $2.00,average total cost is $4.00,and marginal cost is $3.00.In order to maximize profits,this firm should

• A)shut down.
• B)decrease output.
• C)increase output.
• D)increase the market price.
• E)not change output.This firm is at its profit-maximizing position.

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Definitions:

Marginal Social Benefit

The additional gain to society as a whole from an additional unit of a good or service, considering both private benefits and externalities.

Marginal Benefit Curve

The Marginal Benefit Curve is a graphical representation showing how the benefit or utility from consuming each additional unit of a good decreases as more units are consumed.

Government Intervention

Regulatory actions taken by a government in order to affect or interfere with decisions made by individuals, groups, or organizations regarding economic and social matters.

Marginal Cost

The cost of producing one additional unit of a product or service.