Question

A perfectly competitive firm is selling 300 units of output per week at a price of $1,050. Average total cost is $1,010, average variable cost is $990, and marginal cost is $1,100. From this information, it is clear that the firm A. can increase its profit by producing more output per week. B. can increase its profit by producing less output per week. C. can increase its profit by charging a price below $100. D. None of the above is correct.

Answer 1

The correct answer is option B.

Step-by-step explanation:

A firm is operating in a perfectly competitive market.

It producing 300 units of product in a week.

The price of each output is $1,050.

The average total cost is $1,010.

The average variable cost is $990.

The marginal cost is $1,100.

The profit-maximizing level of output for a perfectly competitive firm is where the price of the product is equal to its marginal cost.

In the case of this firm, the marginal cost is higher than the price of the product.

So the firm can maximize their profits by decreasing its output level.