If a Perfectly Competitive Firm Produces an Output Level at Which

question 57

Multiple Choice

If a perfectly competitive firm produces an output level at which price is less than marginal costs, then the firm should:

• A)raise its price.
• B)reduce output to earn greater profits or smaller losses.
• C)expand output to earn greater profits or smaller losses.
• D)leave its output level unchanged provided it is covering its variable cost.

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Definitions:

Best Case Scenario

The most favorable or desirable outcome possible in a given situation.

Worst Case Scenario

the most adverse condition or outcome that can reasonably be projected.

Base Case

The default scenario in scenario analysis, used as a benchmark to compare the outcomes of alternative assumptions or actions.

NPV

Net Present Value, a calculation used to assess the profitability of an investment by summing the present values of all expected future cash flows minus the initial investment cost.