A Purely Competitive Firm Is Producing at the Point Where

question 92

Multiple Choice

A purely competitive firm is producing at the point where its marginal cost equals the price of its product. If the firm increases its output, then total revenue will

• A) increase and profits will increase.
• B) decrease and profits will increase.
• C) increase and profits will decrease.
• D) decrease and profits will decrease.

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Definitions:

Contribution Margin

The amount by which sales revenue exceeds variable costs of production, indicating how much contributes to covering fixed costs and generating profit.

EBIT

A financial indicator, Earnings Before Interest and Taxes, reflects a company's earnings by removing the effects of interest and tax expenses.

Fixed Costs

Costs that do not change with the level of output or sales in the short term.

EPS

Earnings Per Share, a measure of a company's profitability, calculated as net income divided by the number of outstanding shares.